Business planning and entrepreneurial management (s.y bms)

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1. Business planning and entrepreneurial management For S.Y BMS (Semester 3) Prof. Lohita Rao

2. Glance to the module 1. Entrepreneurship Foundations of entrepreneurship development Define entrepreneur, entrepreneurship Concept and need of entrepreneurship development Importance and significance of growth of entrepreneurial activities Characteristics and qualities of entrepreneur Theories of entrepreneurship Innovation theory by Schumpeter and Imitating Theory of high achievement by McClelland X-Efficiency theory by Leibenstein Theory of profit by Knight Theory of social change by Everett Hagen External Influences on entrepreneurship development Socio-cultural, political, economical, personal. Role of entrepreneurial culture in entrepreneurship development.

3. What Do You Mean By Business Planning? B usiness planning is the process of setting goals, explaining the objectives and then mapping out a document to achieve these goals and objectives. A well-written business plan lays out the best growth path and strategy .

4. B efore going in detail, let us understand what is enterprise, entrepreneur and entrepreneurship Enterprise – I t is a company or a business to run for gaining the profit. Entrepreneur - A person or proprietor who sets up a business, taking on financial risks in the hope of profit. It is a key person to initiate any change. According to J.B Say - An entrepreneur is one who brings together the factors of production and combines them into a product. According to Peter Drucker - An entrepreneur is one who always searches for changes, responds to it and exploits it as an opportunity. Entrepreneurship - T he activity of setting up a business, taking on financial risks in the hope of profit. It is a continuous economic process which recognize the need to change . According to Peter Drucker - entrepreneurship is neither the science nor an art. It is practice. It has knowledge base. Knowledge in entrepreneurship is means to an end i.e by the practice.

5. Concept and need of entrepreneurship development. Entrepreneurship is the tendency of person to organize the business of his own and to run it profitably , using all the qualities of leadership , decisions making and managerial caliber etc. Entrepreneurship involves not only the process that leads to the setting up of a business entity but also the expansion and development of an on going concern. The study of entrepreneurship is concerned with the entrepreneurial behavior, the dynamics (running)of business set up and expansion and development. The term “entrepreneur” is often used interchangeably with “entrepreneurship” . But conceptually they are different .

6. Difference between entrepreneur and entrepreneurship.

7. Importance / significance and need of growth of entrepreneurial activities If successful, their innovations may improve our standard of living. In short, in addition to creating wealth from their  entrepreneurial  ventures, they also create jobs and the conditions for a prosperous society . Employment generation Innovation Economic development Social development Increase in foreign trade Import substitution Capital generation Fair regional development N ation building

8. 1. Employment generation: Entrepreneurship not only makes the entrepreneur self occupied but also leads to job creation. Both the small and big companies play the role of catalyst (participation) in generating jobs in an economy. A single entrepreneurial activity could be source of living for many individuals. 2. Innovation: I t is an intrinsic characteristic of entrepreneurship Innovation leads to improvement in technology and value creation which leads to improvement in social and economic progress of the nation and its citizens.

9. 3. Economic Development: Entrepreneurship contributes to the economic development of the nation. Increase in production of goods and services in a country leads to improved GDP. Entrepreneurship has a direct correlation with the GDP of the country thereby leading to improved economic development of the nation.

10. 4. Social development: Many entrepreneurs start new ventures for the purpose of improving the socio conditions of the citizens of a country. E.g Bindeshwar Pathak started sulabh sauchalay with the aim of providing hygienic sanitation facilities. In some cases profit is not the motive of such entrepreneurs.

11. 5. Increase in Foreign Trade: Entrepreneurship increases the foreign trade i.e import as well as export. 6. Import Substitution: It is a trade and economic policy that advocates replacing foreign  imports  with domestic production . 7. Capital Generation: Entrepreneurship leads to mobilizing idle Capital of the citizens. 8. Fair regional development: Entrepreneurship helps in even-handed Regional development as many new ventures are set up in underdeveloped regions.

12. 8. Nation building: Nation-building is constructing or structuring a national identity using the power of the state. Buy paying VAT, EXCISE, SALES TAX, INCOME TAX etc. the entrepreneurs are indirectly responsible for infrastructure development and nation building.

13. Characteristics and qualities of entrepreneur. Decision making Confidence Innovative Well-Informed Vision/foresight Strong inter-personal skills Passion and hard work Flexibility Ethical Competitive Motivated Persistent (determined)

14. Decision making : This is one of the most important qualities for an entrepreneur. Entrepreneurs need to take many decisions everyday. Some decisions have to be taken quickly. Entrepreneurs need to use their knowledge and skills to take immediate decisions. Many a times the decision taken by the entrepreneur may not prove fruitful. however, the entrepreneurs should never be demotivated and rather learn from their mistakes. 2. Confidence: Research has proven that most entrepreneurs have a higher level of confidence in themselves and their decisions over others. Entrepreneurs show confidence in themselves which gets translated in their behavior and dealing with others. This is also one of the most important qualities of an entrepreneur like decision making.

15. 3. Innovative: Innovation is one of the intrinsic characteristics of the entrepreneurship. An entrepreneur generally undertakes innovative methods to satisfy the needs of the society or their target customers. 4. Well-informed: An entrepreneur should have strong technical knowledge. This helps him in the day to day activities. Apart from this an entrepreneur should also be world wise i.e be updated on the current happening in both internal and external environments. 5. Vision/Foresight : Entrepreneurs have the strong vision of the future. With knowledge, skills and strong foresight, entrepreneurs take efforts in visualizing the future requirements of the people as well as technological and regulatory changes and accordingly take appropriate decisions.

16. 6. Strong inter-personal skills: Entrepreneurs have good interpersonal skills which help in dealing, convincing and negotiating with others. 7 . Passion and hard work: Most entrepreneurs are passionate about their work which distinguishes them from others. They tend to love their work and money is not the only motivational facto for them. Passion for success and work satisfaction is what they seek for. 8 . Flexibility: Entrepreneurs are highly flexible according to changing needs. As an entrepreneur it is very important to be flexible in one’s actions and decisions.

17. 9. Ethical: An entrepreneur should process strong ethics in workplace. Entrepreneur should also lead by example not only among his employees but also in the society. 10. Competitive: An entrepreneur like competition. It helps to push further in achieving perfection. 11. Motivated: It is important for an entrepreneur to be highly motivated all the time as this energy not only keeps him going but also passes on to others working with him in the process of achieving the goal. 12. persistent: An entrepreneur needs to make persistent efforts for achievement of goal, he should not lose hope due to initial obstacles but should use them as stepping stones towards his path for success.

18. Chapter 2 : Theories of entrepreneurship. Innovation theory by Schumpeter and Imitating Theory of High Achievement by McClelland X-efficiency theory by Leibenstein Theory of Profit by Knight Theory of Social change by Everett Hagen

19. 1. Innovation theory by Schumpeter and Imitating

20. According to Joseph Schumpeter process of innovation may be in form of Introduction of new product Use of new method of production Opening of new market Conquest of new source of supplying raw material New form of organization. Joseph Schumpeter’s theory on entrepreneurship is one of the revolutionary theories that focuses on creativity and innovation. According to him an entrepreneur is one who is responsible for innovation i.e. bringing something new in the economy which may be possible by one or more or combination of the following. Introduction of new products/goods or changes in the quality of existing products. New method of production which is also capable for commercialization ( the process of managing or running something principally for financial gain. )of any product.

21. 3. A new source of raw material or semi-manufactured goods/products which may have been created but not exploited before. 4. Running a new organization which can either create monopoly in the market or break existing monopoly. Schumpeter named the person carrying any of the above innovations as an ‘entrepreneur’ and the process of carrying out these functions is termed as ‘enterprise’. Features of Schumpeter’s Innovation theory: 1. Invention and Innovation: According to Schumpeter invention and innovation are two different terms. Invention is creating new products services, techniques of production, raw material while innovation means application of such invention for commercial benefit and profit. He believed that inventor holds a more important position as he is responsible for putting the ideas/inventions into practice. 2. Creative Destruction: Schumpeter’s theory stares that any new idea is not adequate. It requires implementation which can be done by a person with strong character i.e. the entrepreneur.

22. He believed that ideas lacked power, it was the entrepreneur will that contained character. Therefore Schumpeter used the term ‘creative destruction (destroy)’ which meant the importance of innovation in a stationary economy was vital to the growth of entrepreneurship. 3. Exploitation of opportunity: Schumpeter believed that entrepreneurs believed in seeking potential opportunities and exploited them to the fullest. They say to convert innovative ideas into commercially successfully ventures by mobilizing financial and human resources. He also believed that entrepreneurs foresee opportunities and try to explore them for financial gain. 4. Breaking the economic equilibrium: The theory focus on the situation of economic equilibrium where marginal cost= marginal revenue. In such a situation there are no factors of production that are in surplus and if the entrepreneur raises funds from external sources, it leads to disequilibrium. This act of breaking economic equilibrium where price begin to rise and leads to market expansion.

23. Critical Appraisal of Schumpeter’s theory: Focus on Innovation: Schumpeter’s theory focuses on innovation and ignores others aspects of management such as risk assessment and risk management. Theory also does not throw light on the actuating controlling aspect of the business venture. 2. Large – scale operation: Joseph Schumpeter’s theory is applicable for large sized businesses. Small business operations having traditional approach to business and limited scope for innovation are not taken into consideration in this approach to entrepreneurship . 3. Relevant to developed Nations: The theory is more applicable in developed countries with latest technology at their disposal. Developing and underdeveloped nations do not have large scale operations nor do they have access to latest technology. Moreover they are not self sufficient in most technological and technical needs.

24. 4. Lack of Clarity on other types of entrepreneurs: There are various other type of entrepreneurs such as imitative (copying) and induced ( influnce ) entrepreneurs who have low motivation levels or lack innovative skills. Schumpeter does not lay any focus such entrepreneurs.

25. 2. Theory of High Achievement by David McClelland: David Clarence McClelland  (May 20, 1917 – March 27, 1998) was an American psychologist and Professor of Psychology at Harvard University, noted for his work on motivation need theory.

26. David McClelland propounded the theory of High Achievement. Theory revolves around the 3 needs that motivate human beings which are as follows: Achievement Power Affiliation According to McClelland, every individual has a need for all 3 but the degree of each need to motivate an individual may vary from person to person. Need for Achievement ( nAch ): According to the theory need for achievement refers to the drive within an individual to excel in life in order to achieve success. Money is not a motivating factor but the sheer pleasure of tasting success keeps them going. Individuals with high need for achievement compete with themselves in order to do something better than what have achieved in the past. McClelland calls it the “inner spirit” which is developed during childhood and sought throughout the lifetime of the individual. According to him the need for achievement is internal and the most important element in the economic development of the nation.

27. Some of the factors that are responsible for triggering the “inner spirit” or the need for achievement include: Aspiration to take personal responsibility Strong spirit for achievement of success Predicting future possibilities Ability and keenness to take calculated risks Strong problem solving skills Pleasure in accomplishing tasks for self satisfaction Constant search for improvements Emotional attachment with activities 2. Need for Power ( nPow ): Individuals with a strong need for power seek control over other people. Such individuals are motivated by acquiring powerful positions having power and control over the organization and the employees. Individuals with a strong need for power are more concerned with the means of achieving the goal rather than the goal itself.

28. Organization can trigger the need for power among individuals to attract and bring out the best in them. (Armed forces, military and political parties are some e.g. that are centred around the need for power) 3. Need for Affiliation ( nAff ): Individuals with a strong need for affiliation seek to make and maintain good and harmonious social relationship Affiliation or attachment with others is the most important factor motivating such individuals. They intend to make personal and informal relations even at workplace and feel motivated when surrounded by their group of friends. Such individuals make close social and psychological relationship with others and a feeling of strong affiliation with them, which is the strongest motivator.

29. 3. X-efficiency Theory by Harvy Leibenstein :

30. X-efficiency refers to the inefficiency of an organization is utilization of resources. X-efficiency arises out of non-optimum utilization or sheer wastage of organizational resources. Features of X-efficiency theory: 1. Organizational deficiency in utilization of resources: The theory focuses on the fact that X-efficiency arises either because firm’s resources are used inefficiently i.e. they may be used in an inappropriate manner or wasted e.g. The amount of leisure time spent by workers in an organization can be considered as non-optimum utilization of resources. 2.Dual Entrepreneurial Role: According to leibenstein , an entrepreneur has to play the dual role of: Improving the current efficiency of existing and new production methods by arranging appropriate inputs. The act of filling gaps in the economy/ environment wherever required.

31. 3. Traditional Vs New Entrepreneurship: Leibenstein identifies two types of entrepreneurs. The first is the traditional or routine type of entrepreneurship which focuses on regular functions of the organization with very limited attention to innovation. On the other hand new or modern entrepreneurship is based on innovation

32. 3. Theory of Profit by Knight:

33. Frank Knight has put forward the theory of profit in his book ‘Risk, Uncertainity and Profit’ According to Knight, profit is the residual return to the entrepreneur for bearing uncertainties in business. Features of the Theory: 1. Profit: Knight believed that profit is the reward for the entrepreneur for bearing uncertainties and not risk Entrepreneur is the sole beneficiary of the profit for his bearing uncertainties in business. 2. Uncertainty: According to Knight there are two types of risks in business. One type of risk can be insured such as theft, fire, etc. However another type of risk which cannot be predicted and are non-insurable . These risky are classified as uncertainties which have to be borne by the entrepreneur.

34. 3. Decision making capabilities: Knight believed that profits arise by decisions made after looking at economic market conditions, degree of monopoly, decisions regarding windfall gains and decisions regarding innovation in new product or technique. 4. Consolidation for uncertainty mitigation: Mitigate means to reduce. Knight believed that consolidation in business can help to reduce the level of uncertainty in business. Since uncertainties in business cannot be insured the only way an entrepreneur could reduce them is by consolidation with other business.

35. 4. Theory of Social change by Everett Hagen:

36. Hagen consider the entrepreneur as a person with creative abilities who is interested in the technological field to solve problems and possesses a strong motivation to achieve. Hagen considers status withdrawal as trigger for changes in the human personality. According to him “status withdrawal occurs when members of some social group perceive that their purpose and value in life are not respected by other groups in the society whom they respect and whose esteem they value”. Hagen puts forward the four types of events that can produce status withdrawal: Displacement by force: In this case a traditional group is displayed by another group with the help of physical force. Denigration of valued symbols: This is observed through change in the attitude of a superior group or suppression by certain groups. Inconsistency of status symbols: This is observed due to changing distribution of economic power. Non-acceptance of expected status on migration to new society: Any non-acceptance of expected status on migration to a new society can also cause status withdrawal. Once status withdrawal occurs, the process of personality transformation occurs triggering the creative personality within the individual.

37. Withdrawal of status respect would create four different types of response and personality types: Retreatist : A retreatist is one who continues to work in the society but remains uninterested towards his work as well as status or position. Ritualist : He acts in a way which is accepted and approved by the society and takes no efforts to improve his position. Reformist: A reformist is one who sets out to change the set rules of the society. Innovator: A creative individual who has most chances of being an entrepreneur.

38. https:// www.slideshare.net/ankitasood169/concept-of-entrepreneurship-1?qid=d7708c68-696f-40ba-a8ba-2d972b6c3458&v =&b=& from_search=4 https://www.slideshare.net/mrinalrao241/entrepreneurship-development-unit-2?qid=4be02175-708b-443c-b006-6edab5a06de4&v=&b=&from_search=3