Business Fundamentals

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Business Fundamentals

Donald J McCubbrey

Copyright © 2009 Donald J McCubbrey

Editor-In-Chief: Donald McCubbrey

Associate Editor: Marisa Drexel

Editorial Assistant: Jackie Sharman

For any questions about this text, please email: [email protected]

The Global Text Project is funded by the Jacobs Foundation, Zurich, Switzerland

This book is licensed under a Creative Commons Attribution 3.0 License

Business Fundamentals 2 A Global Text

Table of Contents
1. The business eco-system: Your path to finding the pot of gold at the end of the rainbow!. .8

The business eco-system: Your path to finding the pot of gold at the end of the rainbow!………………………. 8

The business eco-system…………………………………………………………………………………………………………………10

The sun rise of your new business ………………………………………………………………………………………………….. 12

Accessing market opportunity: the initial rim of the wheel………………………………………………………………… 12

Strategy: the tactical rim on the wheel…………………………………………………………………………………………….. 18

Branding will make your blossoms bloom!……………………………………………………………………………………….20

Branding: The memorable rim on the wheel……………………………………………………………………………………. 20

Stakeholders: the connective rim on the wheel………………………………………………………………………………… 22

The stems of growing startups: definitions of “startup stakeholder arrow” selected terms…………………….23

Ethics: the authentic rim on the wheel……………………………………………………………………………………………..27

Operations: the logistical rim on the wheel……………………………………………………………………………………… 30

New product: the tangible rim on the wheel…………………………………………………………………………………….. 32

Let the fruits of your labor blossom: the new product/service launch event plan…………………………………. 35

Public relations: the sensational rim on the wheel……………………………………………………………………………. 36

Mentor insights: the “Where the Rubber Meets the Road” spokes on the wheel…………………………………..38

2. The mind of the entrepreneur: Your entrepreneurial journey begins by embarking on your
own hero’s journey!……………………………………………………………………………………………………….45

Entrepreneur assessment survey……………………………………………………………………………………………………..47

Answer key……………………………………………………………………………………………………………………………………50

3. Business models and marketing:an overview ……………………………………………………………. 55
What is a business model?……………………………………………………………………………………………………………… 55

Success factors……………………………………………………………………………………………………………………………… 59

Consumer marketing models…………………………………………………………………………………………………………. 60

The marketing model…………………………………………………………………………………………………………………….. 61

Identifying market needs………………………………………………………………………………………………………………..62

Business to business marketing models……………………………………………………………………………………………64

4. How to organize and lead an entrepreneurial venture………………………………………………… 75
Organizational issues…………………………………………………………………………………………………………………….. 76

Organizational stages of growth……………………………………………………………………………………………………… 79

Flat versus tall organizations…………………………………………………………………………………………………………. 82

Centralized versus decentralized organizations……………………………………………………………………………….. 84

5. Selecting and managing your team……………………………………………………………………………88
Competitive advantage through human resource management ………………………………………………………… 88

Providing employee voice and influence ………………………………………………………………………………………….89

Recruiting workers ………………………………………………………………………………………………………………………. 93

Evaluating recruiting policies………………………………………………………………………………………………………….95

Employee training………………………………………………………………………………………………………………………… 98

Aligning employee career development with organizational growth…………………………………………………..101

Performance appraisal…………………………………………………………………………………………………………………. 103

Determining base pay………………………………………………………………………………………………………………….. 109

Meaningful job design………………………………………………………………………………………………………………….. 116

Termination………………………………………………………………………………………………………………………………… 118

6. Marketing on a global scale……………………………………………………………………………………. 132
Defining marketing……………………………………………………………………………………………………………………… 132

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The role of marketing in the firm: a basis for classification ……………………………………………………………… 133

Defining international marketing………………………………………………………………………………………………….. 137

The international marketing plan…………………………………………………………………………………………………..143

The international marketing environment………………………………………………………………………………………149

7. Operations management………………………………………………………………………………………… 157
What is operations management?…………………………………………………………………………………………………..157

The input/output transformation model…………………………………………………………………………………………159

Operations decisions……………………………………………………………………………………………………………………. 161

Special topic: Total Quality Management………………………………………………………………………………………..167

Special topic: supply chain management……………………………………………………………………………………….. 172

Special topic: just-in-time and lean systems…………………………………………………………………………………… 176

8. Securing and managing external relationships………………………………………………………… 180
Introduction to external relationships…………………………………………………………………………………………… 180

Marketing exchanges and partnerships………………………………………………………………………………………… 183

Choosing the right relationship ……………………………………………………………………………………………………. 186

Strategies for external relationships……………………………………………………………………………………………….190

9. Financial and managerial accounting; financing your organization……………………………199
Why an accounting system is important………………………………………………………………………………………… 199

Basic types of accounts ……………………………………………………………………………………………………………….. 201

Chart of accounts………………………………………………………………………………………………………………………… 202

Basic financial statements…………………………………………………………………………………………………………….204

A short history of accounting and double entry bookkeeping…………………………………………………………… 205

Ledgers ………………………………………………………………………………………………………………………………………207

Advanced reports and analyses……………………………………………………………………………………………………… 211

Budgets, forecasts, and alternative scenarios ………………………………………………………………………………….214

10. Leveraging with information technology………………………………………………………………..222
IS tools for the start-up organization ……………………………………………………………………………………………. 223

Moving forward with information systems……………………………………………………………………………………..226

Know what your customers want………………………………………………………………………………………………….. 230

Using information technology competitively………………………………………………………………………………….. 233

What is IS risk management?………………………………………………………………………………………………………. 238

11. Competitive intelligence………………………………………………………………………………………..244
Definition…………………………………………………………………………………………………………………………………… 244

Importance and goals of competitive intelligence ………………………………………………………………………….. 246

Information collection methods…………………………………………………………………………………………………….248

The industry environment ……………………………………………………………………………………………………………249

Porter’s 5 forces and the analysis of competitors ……………………………………………………………………………. 251

Methods of evaluating competitors ………………………………………………………………………………………………. 254

12. Business ethics in a nutshell…………………………………………………………………………………. 257
What is ethics? …………………………………………………………………………………………………………………………… 257

Management: the meta profession…………………………………………………………………………………………………263

Corporate Social Responsibility……………………………………………………………………………………………………. 268

13. Adding products and services………………………………………………………………………………..270
Where does innovation come from?………………………………………………………………………………………………. 271

Innovation through business models…………………………………………………………………………………………….. 275

Evaluating new products……………………………………………………………………………………………………………… 278

Business Fundamentals 4 A Global Text

When innovation fails: deleting products……………………………………………………………………………………….280

14. International business for the entrepreneur………………………………………………………….. 288
Globalization: opportunities and threats to developing country business………………………………………….289

Harnessing technology for global business success…………………………………………………………………………. 295

Doing business across cultures…………………………………………………………………………………………………….. 296

Political and legal risk in international business…………………………………………………………………………….. 299

Global marketing: assessing potential markets overseas…………………………………………………………………. 303

Global finance: initial considerations …………………………………………………………………………………………… 306

Organizational structure and human resources management………………………………………………………….. 309

Corporate Social Responsibility and sustainable development in the global environment…………………… 316

15. Growth strategies for start-ups………………………………………………………………………………326
Definition and models ………………………………………………………………………………………………………………… 326

Growth problems………………………………………………………………………………………………………………………… 331

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Preface

The Global Text Project (http://globaltext.org/) was initiated in early 2006 to develop a series of free, open

content, electronic textbooks. A description of the Global Text Project is available on the project’s website.

The first book in the series is on information systems, because the founders of the Global Text Project are both

Information Systems professors who knew many other IS academics who wanted to help start the book. IS

professors have a long history of cooperating with each other on a global scale. Creation of an open content

textbook on information systems required the cooperation of the worldwide community of faculty and their

students, as well as practitioners.

The IS community, of all academic communities, should be the one that is an early adopter of technology that

holds the promise of being able to create a state-of-the-art open electronic textbook. The Information Systems

textbook created by the community aims to evolve over time to be best-in-class, up-to-date, and, perhaps most

importantly, make available at no cost to students anywhere in the world, but particularly to students in the

developing world.

The impetus for developing the business fundamentals text as the second of the proof of concept texts was based

on the realization that it is a mistake to teach information systems in a vacuum, i.e. without giving students an

appreciation of the organizational settings in which they operate. Accordingly, a table of contents was prepared and

volunteers were recruited to serve as chapter editors and reviewers for a book on business fundamentals. Most

chapter editors are academics who wrote their own chapters while, in other cases, teams of graduate students wrote

segments of a chapter as a part of a course assignment. All contributions are gratefully acknowledged and the

contributors names are noted at the beginning of each chapter.

We learned some things from developing the two proof of concept texts:

• Faculty members are busy people and, in most instances, a contributed book chapter is not as highly

regarded for promotion and tenure as a peer-reviewed article in a highly-rated academic journal. As a

result, delivery times of chapters varied widely. For example, one faculty member wrote his chapter over

spring break in 2008, and two other chapters were finally written by new authors after it became clear that

the original authors were not going to deliver.

• In the meantime, publicity received by Global Text attracted the attention of authors who either had

manuscripts ready to be published or had texts that were out of print (most often as a result of

consolidations in the publishing industry) that could be scanned, and published quickly by Global Text.

Consequently, we are continuously searching for high quality titles in every higher education discipline. The

plan is to create communities to get updated and to extend contributed texts.

• The idea of having students write a book as a part of a course assignment proved to be bear fruit as a books

on IT Management and Change Management were created by graduate classes at the University of Denver

and the University of Washington, respectively, during the spring of 2009. As discussed on the GTP

website, the XML book that was created by students at the University of Georgia in 2004, and updated by

successive classes since then, was a major inspiration behind the idea of the Global Text Project.

And now a bit about the focus of this text:

Business Fundamentals 6 A Global Text

1. The business eco-system: Your path to finding the pot of gold at the end of the rainbow!

The Business Fundamentals text is designed to introduce students, particularly those in developing economies,

to the essential concepts of business and other organizations. It does this by focusing on small, entrepreneurial

start-ups, and expanding the discussion in each chapter to include issues that are faced in larger organizations

when it is appropriate to do so. Traditional business models are discussed as well as eBusiness models, with

appropriate links to the IS Global Text and other relevant websites. All major functional areas of modern

organizations are covered.

A common thread in most, if not all, chapters will be applicable principles of sustainable development and

corporate social responsibility, although these topics are covered in depth in Chapter 12. In keeping with the

community-based content development principles of the Global Text Project, active participation of members of the

global community of academics, students, and practitioners in its creation and continuing maintenance is strongly

encouraged.

Chapter 1 and 2 feature a unique interactive option for readers.

Visit http://www.mentorography.com to post the Blog Back assignments to share your insights and comments

on others’ postings.

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1. The business eco-system:
Your path to finding the pot
of gold at the end of the
rainbow!

Editor: Molly Lavik (Vatel International Business School Los Angeles, USA)

Reviewer: Debbi D Brock (Berea College, USA)

Exhibit 1: Striking gold

Image created by: Taissia Belozerova,

Graphic Designer, Artist, MBA Candidate

at Pepperdine University Class of 2009

Dedication: In Memory of Nancy Wachs who believed in everyone’s Startup time!

The business eco-system: Your path to finding the pot of gold at the end of the
rainbow!

There are many ways to live your life. One of the most exciting yet challenging ways to live your life is to start

your own business or work for someone who has their own startup. People who start their own businesses are

Business Fundamentals 8 A Global Text

1. The business eco-system: Your path to finding the pot of gold at the end of the rainbow!

known as entrepreneurs. Entrepreneurs throughout the world are extremely enthusiastic individuals who devise

visionary methods to accomplish their new venture ideas while simultaneously convincing others to help.

Merriam-Webster Online defines the term “entrepreneur” as follows:“Etymology:

French, from Old French, from entreprendre to undertake — more at ENTERPRISE

Date: 1852 : one who organizes, manages, and assumes the risks of a business or enterprise”1

Are entrepreneurs born or made?

There is a long-standing discussion throughout the world that delves into whether you are born predisposed to

become an entrepreneur or is it necessary for you to work and study hard to make yourself into one. There are

many examples of individuals who were told they would never amount to anything and yet they went on to become

very successful entrepreneurs. So, if you think that you are unlikely to be an entrepreneur, please realize it is

possible for you to become an entrepreneur and to, potentially, even become a very successful one. With that said,

there are characteristics and an overall mindset you can adopt that will help “predispose” you to having a greater

opportunity of becoming a successful entrepreneur. Some of the most common characteristics of an entrepreneur

include the following attributes:

“The Mindset of an Entrepreneur”

Vision: Able to create and communicate an easily understandable mission for what the new

venture does in order to successfully launch a new business. This is accomplished while inspiring

others to join you in your new enterprise.

Creativity: Ability to inject imagination and uniqueness into a new business venture. It takes skill

and ingenuity to create a new venture equipped with strategies to outsmart the competition.

Focus: Able to maintain the vision of the company with unwavering diligence. It’s very easy to get

sidetracked especially if you find it necessary to evolve the original vision. Ironically, we have

encountered many successful entrepreneurs who get bored easily…

Passion: Desiring to succeed under your own steam [initiative] on a business venture…

Drive: Possessing intrinsic energy to accomplish the business goal even in the face of adversity.

Perseverance: Able to keep going even when faced with seemingly insurmountable obstacles.

Opportunistic Nature: Sees the possibilities even before they exist. Can take advantage of an

upcoming trend or unite unrelated processes to create a unique business venture…

Problem Solving Ability: Thrives on coming up with solutions to complex challenges…

Self-discipline: Able to be organized and regimented in pursuit of a successful business venture.

Frugality: Knows how to stretch every cent so that expenditures are as low as possible.

1 Merriam-Webster’s Online Dictionary, “Merriam-Webster Online,” http://www.merriam-

webster.com/dictionary/entrepreneur (Assessed, August 30, 2008).

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Empathy: Able to put yourself in another’s shoes and therefore able to show sensitivity and

understanding of what others are communicating in the startup environment…

Social Responsibility: Ethics, caring and humanitarianism are characteristics that are commonly

found in today’s entrepreneurs…

Spirituality: We have found that successful entrepreneurs have often devoted time to spirituality

development. Meditation and positive affirmations are two common examples of spirituality.

Good Timing: Able to identify a market opportunity and know when it’s the optimum time to

launch a new venture or expansion of an existing enterprise.

Luck: Can a person be predisposed to be lucky: Is luck a human behavior or a karmic universal

predisposition?”2

Read on: Chapter 2 is dedicated to this topic and delves deeply into “The mind of an entrepreneur”.

Blog Back 1: Mindset

Blog Back: Is an entrepreneur born or made?

What characteristics are necessary for an entrepreneur to be successful and why? What additional

entrepreneurial mindset characteristics could be added to the list and why?

Go to: http://www.Mentorography.com and make your case.

The business eco-system

Whether you possess the characteristics of an entrepreneurial mindset, or work for someone who does, you can

still be instrumental in starting a new venture by understanding the business eco-system. What is a business eco-

system? A business eco-system is a set of business components that form the foundation of a new venture’s

creation. Figuratively, the business eco-system is like a wheel that rolls your new venture forward which is why we

represent the business eco-system in a wheel-shaped model .

2 “The Mindset of an Entrepreneur” is reprinted and adapted with permission from Mentorography, Inc. © 2008.

All Rights Reserved. Entrepreneurial Marketing; Real Stories and Survival Strategies by Molly Lavik and Bruce

Buskirk, introduction pages xxviii-xxx.

Business Fundamentals 10 A Global Text

1. The business eco-system: Your path to finding the pot of gold at the end of the rainbow!

Exhibit 2: Business eco-system wheel

The Business Eco-system Wheel is reprinted and adapted from the

Entrepreneurial Marketing Wheel with permission from Mentorography, Inc.

© 2008. All Rights Reserved. Entrepreneurial Marketing; Real Stories and

Survival Strategies by Molly Lavik and Bruce Buskirk, Preface, page xxii.

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Exhibit 3: Caption: Rising sun

Image created by: Taissia Belozerova,

Graphic Designer, Artist, MBA Candidate

at Pepperdine University Class of 2009

The sun rise of your new business

Accessing market opportunity: the initial rim of the wheel

Market Opportunity is positioned at the top of the Business Eco-system Wheel for a reason. Every new venture

starts with a single seed or kernel of an idea to do something in business that will result in money being exchanged.

Since there is always some risk associated with starting a new business, you will have to take special care to plant

the idea seeds of your new venture in a way that allows these seeds to some day bloom into a successful venture.

When to plant your market opportunity seeds

Without a doubt it’s challenging to know when to move forward and plant your new venture ideas in the

“business garden” where you want to grow your career.

Entrepreneurs who are considering moving forward with a new venture idea can utilize the following questions

and the “Stop and Go Signs for Accessing Market Opportunity Matrix.”

“Stop and Go Signs for Accessing Market Opportunity Matrix”

“Is there a customer for this product or service? Is there someone who will buy the product or

service you’re considering selling? You can’t effectively answer this question until you have

personally spoken to the potential customer and ascertained that this person will buy your product.

You need to know as much about this customer as the customer knows about himself: What are the

demographics of this customer? What influences his buying behavior? What factors could lead to

Business Fundamentals 12 A Global Text

1. The business eco-system: Your path to finding the pot of gold at the end of the rainbow!

this customer changing his mind about buying the product or services? What will be the impact of

a crisis during an emerging trend?

What will it cost to make a sale to this customer? If there is a common pitfall for

entrepreneur, it’s greatly underestimating the …