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CHAPTER 4
IDEAS, OPPORTUNITIES, AND INNOVATIONS

LEARNING OUTCOME
1. Differentiate business organization as to its form of ownership.
2. Determine the pros and cons of various business organizations.
3. Distinguish the types and categories of organizations.
4. Demonstration the personal entrepreneurial competencies.

In particular, there is confusion about the difference between

creativity, innovation and invention. Let us start with some definitions:

CREATIVITY is the capability or act of conceiving something original

or unusual. It is the ability to develop new ideas and to discover new ways
of looking at problems and opportunities.

OPPORTUNITY is an idea for a new product or service with a market

that is willing to pay that product or service so that it can form the basis of a
profitable business.

INNOVATION is the implementation of something new. It is the

ability to apply creative solutions to those problems and opportunities in
order to enhance people's lives or to enrich society.

INVENTION is the creation of something that has never been made

before and is recognized as the product of some unique insight.

If you have a brainstorm meeting and dream up dozens of new ideas

then you have displayed creativity but there is no innovation until something
gets implemented. Somebody has to take a risk and deliver something for a
creative idea to be turned into an innovation. An invention might be a
product or device or method that has never existed before. So every
invention is an innovation. But every innovation is not an invention. When
your company first published its website that was a major innovation for the
company even though many other websites already existed.

We tend to think of an innovation as a new product but you can

innovate with a new process, method, business model, partnership, route to
market or marketing method. Indeed, every aspect of your business
operation is a candidate for innovation. Peter Drucker said, ‘Every
organization must prepare for the abandonment of everything it does.’ So do
not restrict your vision of innovation to products. Some of the most powerful
innovations you can make are in business methods and customer services.
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If we look at companies like Dell, eBay and Amazon we see that their great
innovations were with their business models rather than in new products.

Innovations can be incremental or radical. Every improvement that

you make in products or services can be seen as an incremental innovation.
Most businesses and most managers are good at incremental innovation.
They see problems in the current set-up and they fix them. Radical
innovations involve finding an entirely new way to do things. As such they
are often risky and difficult to implement.

Scanning the Marketing Environment

This is the starting point of any venture that involves understanding

and knowing the intricacies (complexities) of the whole environment.
Marketing Environment is the combination of external and internal
factors and forces which affect the company’s ability to establish a
relationship and serve its customers.
The marketing environment of a business consists of an internal and
an external environment. The internal environment is company-specific and
includes owners, workers, machines, materials etc. The external
environment is further divided into two components: micro & macro. The
micro or the task environment is also specific to the business but external. It
consists of factors engaged in producing, distributing, and promoting the
offering. The macro or the broad environment includes larger societal forces
which affect society as a whole. The broad environment is made up of six
components: demographic, economic, physical, technological, political-legal,
and social-cultural environment.

“A company’s marketing environment consists of the actors and

forces outside of marketing that affect marketing management ability to build
and maintain successful relationships with target customers”. – Philip
Kotler

Components of Marketing Environment

The marketing environment is made up of the internal and external
environment of the business. While the internal environment can be
controlled, the business has very less or no control over the external
environment.

● Internal Environment
The internal environment of the business includes all the forces and
factors inside the organization which affect its marketing operations. These
components can be grouped under the Five M’s of the business, which
are:

▪ Men
▪ Money
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▪ MachineryS
▪ Materials
▪ Markets

The internal environment is under the control of the marketer and can be
changed with the changing external environment. Nevertheless, the internal
marketing environment is as important for the business as the external
marketing environment. This environment includes the sales department,
marketing department, the manufacturing unit, the human resource
department, etc.

● External Environment
The external environment constitutes factors and forces which are
external to the business and on which the marketer has little or no control.
The external environment is of two types:

Micro Environment
The micro-component of the external environment is also known as
the task environment. It comprises of external forces and factors that are
directly related to the business. These include suppliers, market
intermediaries, customers, partners, competitors and the public

▪ Suppliers include all the parties which provide resources needed by the

organization.
▪ Market intermediaries include parties involved in distributing the
product or service of the organization.
▪ Partners are all the separate entities like advertising agencies, market
research organizations, banking and insurance companies,
transportation companies, brokers, etc. which conduct business with the
organization.
▪ Customers comprise of the target group of the organization.
▪ Competitors are the players in the same market who targets similar
customers as that of the organization.
▪ Public is made up of any other group that has an actual or potential
interest or affects the company’s ability to serve its customers.

Macro Environment
The macro component of the marketing environment is also known as
the broad environment. It constitutes the external factors and forces which
affect the industry as a whole but don’t have a direct effect on the business.
The macro-environment can be divided into 6 parts.

● Demographic Environment
The demographic environment is made up of the people who
constitute the market. It is characterized as the factual investigation and
segregation of the population according to their size, density, location, age,
gender, race, and occupation.
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● Economic Environment
The economic environment constitutes factors which influence
customers’ purchasing power and spending patterns. These factors include
the GDP, GNP, interest rates, inflation, income distribution, government
funding and subsidies, and other major economic variables.

● Physical Environment
The physical environment includes the natural environment in which
the business operates. This includes the climatic conditions, environmental
change, accessibility to water and raw materials, natural disasters, pollution
etc.

● Technological Environment
The technological environment constitutes innovation, research and
development in technology, technological alternatives, innovation
inducements also technological barriers to smooth operation. Technology is
one of the biggest sources of threats and opportunities for the organization
and it is very dynamic.

● Political-Legal Environment
The political &Legal environment includes laws and government’s
policies prevailing in the country. It also includes other pressure groups and
agencies which influence or limit the working of the industry and/or the
business in the society.

● Social-Cultural Environment
The social-cultural aspect of the macro-environment is made up of the
lifestyle, values, culture, prejudice and beliefs of the people. This differs in
different regions.

Importance of Marketing Environment

Every business, no matter how big or small, operates within the
marketing environment. Its present and future existence, profits, image,
and positioning depend on its internal and external environment. The
business environment is one of the most dynamic aspects of the business.
In order to operate and stay in the market for long, one has to understand
and analyze the marketing environment and its components properly.
Essential for planning

An understanding of the external and internal environment is essential

for planning for the future. A marketer needs to be fully aware of the current
scenario, dynamism, and future predictions of the marketing environment if
he wants his plans to succeed.

Understanding Customers
Thorough knowledge of the marketing environment helps marketers
acknowledge and predict what the customer actually wants. In-depth
analysis of the marketing environment reduces (and even removes) the
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noise between the marketer and customers and helps the marketer to
understand consumer behaviour better.

Tapping Trends
Breaking into new markets and capitalizing on new trends requires a
lot of insight about the marketing environment. The marketer needs to
research about every aspect of the environment to create a foolproof plan.

Threats and Opportunities

Sound knowledge of the market environment often gives a first-mover
advantage to the marketer as he makes sure that his business is safe from
future threats and taps the future opportunities.

Understanding the Competitors

Every niche has different players fighting for the same spot. A better
understanding of the marketing environment allows the marketer to
understand more about the competitions and about what advantages do the
competitors have over his business and vice versa.

GENERAL RULE:
Find the opportunity first before coming up with a new product
or service in the future”.1.

3S of Opportunity Spotting
This is the framework that most of the promising entrepreneurs use to
finally come with the ultimate product or service suited for the specific
opportunity.
It is the entrepreneur’s business idea that can potentially become a
commercial product or service in the future.

S1 SEEKING THE OPPORTUNITY

Opportunity is the first step and is the most difficult process of all
due to the number of options that the entrepreneurs will have to choose
from. It involves the development of new ideas from various sources as
follows:

1. Changes in the environment

a. external/Macro-environment
b. internal/micro-environment
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2. technological discovery and advancement

3. Government thrust, programs, and policies
4. People’s interests
5. past experiences

A. EXTERNAL/MACRO-ENVIRONMENT- involves the larger societal forces

that influence the micro-environment
a. PESTEL – political, economic, socio-cultural, technological,
ecological, legal
a.1 Political factors are usually induced by government
policies and administrations, which can have a strong effect in the
entrepreneur’s business.
a.2 Economic factors are factors which are primarily caused
by changes or movements in the Phil. Economy that have direct
or indirect effects on the entrepreneurial business.
a.3 Socio-cultural factors represent the general view of the
locality’s traditions, customs, beliefs, norms, and perceptions.
a.4 Technological factors basically refer to the trends and
developments in computer and information technology that have
an impact on the business.
a.5 Environmental/Ecological factors should be given much
importance especially when the world has severely suffered from
human induced calamities.
a.6 Legal factors are the elements and bodies that are directly
involved in the legislation and interpretation of laws and
ordinances directly affecting the business.
b. Industry environment – government, suppliers, customers,
competitors, employees, creditors
b.1 Government -refers to system or institution that handles
the affairs of the country.
*Types/Classification of Government
*Democracy
*Autocracy
*Republic
*Monarchy
*Dictatorship
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b.2 Suppliers- refer to individual persons or companies that provide

the required materials, parts or services of the business.
*Criteria of Selecting Suppliers
1. quality of good and services
2. terms of payment
3. stability
4. ability to respond to urgent need
5. proximity of the location

b.3 Customers- are the buyers of good and services produced or

tendered by the business. It must constantly evaluate and study the
behavior, tastes, preferences, inclinations and even future activities
of the customers.
b.4 Competitors- are the forces existing in the industry environment
that produce, sell or render products or services which are similar to
those of the business.
● Direct competitors – produce or sell similar products or
services
● Indirect competitors – produce and sell substitute
products

b.5 Employees- are the workers of the business who highly

responsible for the production of goods and services to the
customers. They help ensure the quality and quantity of the
products or services provided to customers. They are the
backbone of the business.
b.6 Creditors- refer to banks, financial institutions and financial
intermediaries engaged in the lending of money to the borrower
usually for a fee or charge in the form of interest.

B. Internal / Microenvironment refers to the environment within the

business.
a. Business Resources- are assets or properties owned or controlled by
the business. It can either be:
1.Tangible Resources are assets of the business that have physical
appearance and form.
● Current Resources- are used, applied, or consumed within a
short period or one year.
● Noncurrent or fixed Resources – are properties whose
usefulness or benefits extend beyond one year.
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2. Intangible Resources- are assets of the business that do not have

physical appearance of form. A business without resources cannot
exist and a business with insufficient resources cannot sustain the
operation.

b. Business Culture- is a collection of values, beliefs, principles, and

expectations learned and shared by employees, founders, stakeholders,
and members of the management.

* reflects the overall image of the business to the community.

* reflects the identity of the employees but not dependent on the
culture of dominant employees in the business.

TYPES OF CULTURES OPERATING IN THE INTERNAL ENVIRONMENT:

• Culture of the Business or Organization
• Individual Culture of the Employees

• The entrepreneur has the primary responsibility to handle the level

of cultural acceptance and cultural integration among Filipino workers
in the business.

•Cultural Acceptance refers to the degree by which the

employees accept the culture of the unit or business.
•Cultural Integration refers to the degree by which all units
across the business accept and share a common culture.

c. Business Structure- refers to the formal organizational arrangement

of the business in terms of hierarchy of positions, flow of
communication, relationship of functional areas, and production and
marketing processes. It also refers to the complexity of the business
structure depends on the type of business, nature of operation, capital
base requirement, leadership style, and scope of operation.

METHODS OF GENERATING IDEAS

1. Focused-Group Discussion (FGD) is conducted by an entrepreneur

with the assistance of a moderator to gather the views of selected
consumers on certain issues related to their buying behavior.

2. Brainstorming is an activity similar to an FGD, that allows the

participants to share creative ideas using the following rules: (a) no
destructive criticism or judgement is allowed; (b) wider ideas are
accepted; (c) more ideas are preferred; and (d) improvement of
others’ ideas is allowed. In short, brainstorming is a fun discussion
with lenient rules.
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3. Brainwriting or Internet brainstorming is exactly the same as

brainstorming except that the channel used is not face-to-face, but in
writing or online.

4. Problem inventory analysis is similar to the FGD except that the

participants are already given an inventory of product or service
problems. Participants will just identify from the list given the
compelling problem(s) of a potential product or service instead of
generating the ideas from them.

S2: SCREENING THE OPPORTUNITY

Opportunity Screening is the process of cautiously selecting the

best opportunity. The selection will depend on the entrepreneur’s internal
intent and the external intent which will address the compelling needs of the
target market.

Risk Appetite refers to the entrepreneur’s tolerance of business

risks. The crafting of a business plan starts only when entrepreneurs already
said no to many opportunities and said yes to one forceful opportunity, to
which they will devote their time and resources.

The entrepreneur should say no to an opportunity if it does not

contain any of these business opportunity elements:
• Has superior value to customers
• Solves a compelling problem, issue, a need, or a want
• Is a potential cash cow
• Matches with the entrepreneur’s skills, resources, and risk
appetite

OPPORTUNITY SCREENING MATRIX (OSM) aims to assist entrepreneur

concretize the evidence that the chosen opportunity (or opportunities) is well
worth pursuing. The 12 Rs of Opportunity Screening

• Relevance to vision, mission, and objectives of the entrepreneur. •

Resonance to values.
• Reinforcement of Entrepreneurial Interests
• Revenues – determine the sales potential of the products or
services you want to offer.
• Responsiveness to customer needs and wants.
• Reach – attainment of rapid growth
• Range – potentially lead to a wide range of possible product or
service offerings
• Revolutionary Impact – “next big thing” or a game-changer that will
revolutionize the industry
• Returns – high returns on investment
• Relative Ease of Implementation – easy to implement
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• Resources Required – fewer resources is better than those

requiring more resources
• Risks

S3: SEIZING THE OPPORTUNITY

Opportunity Seizing is the last step in opportunity spotting and

assessment. It is the “pushing through” with the chosen opportunity.

Innovation is s the process of positively improving an existing product or

service. It is a key driver for economic growth.

Three (3) types of Innovations according to the degree of

distinctiveness:

1. Breakthrough innovation may also include inventions, occur

infrequently as these establish the platform on which future
innovations in an area are developed. It must be protected by patent,
a trade secret, or a copyright. Examples: Internet, computer, or
airplane

2. Technological innovation occurs more frequently than breakthrough

innovations. They are technological advancements of an existing
product or service. These innovations need to be protected too.
Examples: wireless fidelity or Wi-Fi, laptop, and jet airplane.

3. Ordinary innovations occur ordinarily as the name implies. They are

commonly originating from market analysis and technology pull
instead of a technology push. This means that the market has a
strong influence in the implementation of an innovation. Examples:
unlimited Internet plans of telecommunications companies, a wireless
mouse, and airbus for economical travelers.

The last process, called the seizing process, involves refining

and developing this opportunity. The refining process is called
product or service planning and development process.

Four (4) stages:

1. Idea stage – in this stage, the entrepreneur determines what are

the feasible products and/or services that will perfectly suit the
opportunity.
• Market evaluation
• Assessment of the value of new products/service
• Elimination of unappealing products/services
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2. Concept stage – the developed idea will undergo a consumer

acceptance test. This test includes getting the initial reactions of
the primary target market and the distribution channel.
• Conversational interviews

3. Product development stage – in this stage, the entrepreneur

leverages on the information generated from the prospective
customers via the concept stage.
• Determine actual reactions from prospective customers
• Conduct consumer panel

4. Test marketing stage – this stage validates the work done from
the first three stages to measure success in the commercialization
of the product or service.
•Actual sales results

Once the 3S of opportunity spotting and assessment have been

diligently done, the entrepreneur should now be ready to prepare a
comprehensive business plan that covers marketing, operations, and
financial plan.

INNOVATION

Innovation is the implementation of new ideas at the individual,

group or organizational level. A process of intentional change made to
create value by meeting opportunity and seeking advantage.

• Process: Innovation is a process (implying, among other things, that it

can be learned and managed).
• Intentional: That process is carried out on purpose.
• Change: It results in some kind of change.
• Value: The whole point of the change is to create value in our economy,
society and/or individual lives.
• Opportunity: Entrepreneurial individuals enable tomorrow's value creation
by exploring for it today: having ideas, turning ideas into marketable
insights and seeking ways to meet opportunities.
• Advantage: At the same time, they also create value by exploiting the
opportunities they have at hand.

TYPES OF INNOVATIONS

Four distinct types of innovation:

1. Invention - described as the creation of a new product, service or

process. Something that has not been tried before.
2. Extension - The expansion of an existing product, service or process.
This would mean that the entrepreneur takes an existing idea and
applies it differently.
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3. Duplication - Copying (replicating) an existing product or service and

then adding the entrepreneurs own creative touch. In order to improve
it.
4. Synthesis - A combination of more than one existing products or
services into a new product or service. This means that several
different ideas are combined in to one new product or service.

THE INNOVATION PROCESS

1. Analytical planning – Carefully identifying the product or service

features, design as well as the resources that will be needed.
2. Resource organization – Obtaining the required resources, materials,
technology, human or capital resources.
3. Implementation – Applying the resources in order to accomplish the
plans
4. Commercial application – The provision of value to customers, reward
employees, and satisfy the stake holders.

CREATIVITY- is thinking new things, and innovation is doing new

things. It is the ability to develop new ideas and to discover new ways of
looking at problems and opportunities.

INNOVATION- is the ability to apply creative solutions to those

problems and opportunities in order to enhance people’s lives or to enrich
society.

Entrepreneurship = creativity + innovation

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Assessment

I. MODIFIED TRUE OR FALSE. Write T if the statement is

true; if False, Change the underlined word or phrase to make
the statement correct.
__________1. Every improvement that an entrepreneur makes in a
product or services can be seen as radical innovation.
__________2. External marketing environment can be controlled;
the business has very less control or no control over
the internal environment.
__________3.
__________4. The business environment is one of the most dynamic
aspects of the business.
__________5. Find the business first before coming up with a new
product or service.
__________6. A better understanding of the marketing environment
allows the marketer understand more about
competitions.
__________7. Business culture is dependent on the dominant culture
of employees in the business.
__________8. Brainstorming is a method of generating ideas to
gather views of selected consumers on certain issues
related to their buying behavior.
__________9. Once the 3S of opportunity spotting and assessment
have been diligently done, the entrepreneur is ready
to start up his business.
_________10. There is no innovation until something gets
implemented.
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II. Multiple Choice. Select the best answer from the choices.
Encircle the letter of your choice.

1. It is the ability to develop new ideas and to discover new ways of

looking at problems and opportunities.
a. Innovation c. invention
b. Creativity
2. The ability to apply creative solutions to the problems and
opportunities in order to enhance people’s lives or enrich society.
a. Creativity c. invention
b. Innovation
3. An innovation where the required resources, materials,
technology, human and capital resources are obtained.
a. Analytical planning c. resource organization
b. Commercial application
4. It is the replicating of an existing product or service and then
adding the entrepreneur’s own creative touch in order to improve.
a. synthesis c. extension
b. duplication
5. It is the stage in the service planning and development process
which validate the work done to measure success in the
commercialization of the product or service.
a. Concept stage c. test marketing stage
b. Product development stage
6. It is the “pushing through” with the chosen opportunity.
a. Opportunity seizing c. screening opportunity
b. Seeking opportunity
7. It is the process of cautiously selecting the best opportunity.
a. Opportunity seizing c. screening opportunity
b. Seeking opportunity
8. It refers to the entrepreneur’s tolerance of business risks.
a. risk appetite c. opportunity seeking
b. stress tolerance
9. This refers to the collection of values, beliefs, principles and
expectations learned and shared by employees, stakeholders, and
members of the management.
a. business resources c. business culture
b. business structure
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10. A method of generating ideas that allows the participants to have

creative ideas using rules.
a. focused-group discussion c. brainwriting
b. brainstorming
11. It is the degree by which all units across the business accept and
share a common culture.
a. cultural acceptance c. culture of business
b. cultural integration
12. It is the most difficult process in opportunity spotting due to the
number of options the entrepreneur will have to choose from.
a. seeking opportunity c. seizing opportunity
b. screening opportunity
13. It is the starting point of any venture that involves understanding
and knowing the complexities of the whole environment.
a. marketing environment scanning
b. environment scanning
c. opportunity scanning
14. It is an innovation that involve finding an entirely new way to do
things.
a. radical innovation c. ordinary innovation
b. incremental innovation
15. It is a component of marketing environment which includes
forces inside the organization which affects its marketing
operations.
a. internal environment c. macro-environment
b. external environment

III. Differentiate (nos. 1-4; 2 pts each/ no. 5; 4 pts; a total of 10

pts)

1. Creativity
2. Business idea
3. Opportunity
4. Invention
5. Macro vs micro-environment
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