CHALIMBANA UNIVERSITY

Integrity. Service. Excellence.

SCHOOL OF EDUCATION

DEPARTMENT OF EDUCATION

COURSE CODE: 3100

COURSE NAME: ENTREPRENEURSHIP STUDIES

© 2017
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AUTHORS:

Mr. Sikalumbi,A.D.

Mr. Susiku, A.

Mrs. Fulumaka, H.M.M

RATIONALE
This course serves to provide students with appropriate entrepreneurial knowledge and skills
which are important elements in building a global competitive advantage of the nation. The course
evolves beyond the original goal of venture creation to emphasize the development of
entrepreneurial behaviours and skills. Attention has also been directed towards building both
business skills and theoretical/strategic planning skills which are essential to an entrepreneur. It is
hoped also that through their creativity, the trainee teachers would begin to initiate development
of entrepreneurial attitudes and skills in their learners.

COURSE AIM
The aim of this Course is to introduce university students to some key concepts in
Entrepreneurship, Innovation and Small Business Management, as a means of stimulating them
(students) to consider Self-Employment and Entrepreneurship as a career option to formal
employment as well as inculcating entrepreneurial knowledge and skills in the learners.

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COURSE OBJECTIVES
• Analyse theories of entrepreneurship
• Examine the key determinants of entrepreneurial success
• Identify and maximize business opportunities that are available.
• Explore the Marketing Strategies that may be employed by small businesses.
• Establish the importance of entrepreneurship in education.
• Examine fundraising ventures available for schools.
• Describe and prepare a Business Plan (Business Project).

LEARNING OUT COMES

At the end of the course, students should be able to: -

• Understand what it takes to start and manage an enterprise.
• Identify, evaluate and plan for business opportunities
• Demonstrate the ability to inculcate basic entrepreneurship skills in young children.
• Have hands-on experience in drafting a Business Plan
• Apply entrepreneurial concepts and practices in running a business

ASSESSMENT

1. CONTINUOUS ASSESSMENT

a. 1 assignment 10%

b. Business Project 20%

c. Test 20%

2. FINAL EXAM 50%

TOTAL 100%

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 TABLE OF CONTENT

UNIT 1
1.0 INTRODUCTION TO ENTREPRENEURSHIP ……………………..……. 4
1.1 Entrepreneurship in History ……………………………………….…… 4
1.2 What Is Entrepreneurship? ………………………………………….….. 6
1.3 The concept of Entrepreneurship……………………………………… 7
1.4 Who Is Entrepreneur? …………………………………………………. 7
1.5 Characteristics of an entrepreneur …………………………………..…. 8
1.6 Factors in entrepreneurship ………………………………...….………. 11
UNIT 2
2.0 THEORIES OF ENTREPRENEURSHIP ……………..……………..…….. 12
2.1 Why is a theoretical framework important to any field of study? …...… 12
2.2 Economic Theories of Entrepreneurship ………………………………. 13
2.3 Psychological Theory of Entrepreneurship ….………………………… 17
UNIT 3
3.0 THE ENTREPRENEURIAL PROCESS ……………….……….………….. 21
3.1 The Four Steps in the Entrepreneurial Process ……..………………….. 21
3.2 Conclusion …………………………………………...………………… 24
UNIT 4
4.0 FORMS OF LEGAL BUSINESS OWNERSHIP ………………….……….. 25
UNIT 5
5.0 SOURCES OF FINANCES ………………….………..………………..…….. 27
UNIT 6
6.0 S.W.O.T ANALYSIS ……………………………………………………….…. 28
6.1 S.W.O.T ……………………………………….…………….………….. 28
6.2 Advantages of S.W.O.T analysis ……………..……………..………….. 30
6.3 Limitations of S.W.O.T analysis ……………...………………………… 30
UNIT 7
7.0 RISK MANAGEMENT ………………………………………………………... 32
7.1 Definition of risk and uncertainty …………………...………………...… 32
7.2 Sources of risk and uncertainty …………………...……………………. 32
7.3 Methods of reducing risk and uncertainty ……………………………... 33
UNIT 8
8.0 MARKETING ……………………………...…………………………………… 35
8.1 What is marketing? .………………..………………….…………………. 35
8.2 What is a market? …………….…..……………………………………… 35
8.3 The marketing philosophy …………..………………...…………………. 35
8.4 Marketing Approaches ………………..………………………….………. 36
8.5 TARGETING ……………………….…………………………….……… 39
8.6 POSITIONING ………………………....………………………………… 41

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 8.7 THE MARKETING MIX …………………………..…………………... 47
8.7.1 PLACE …………………………...……………..…………... 48
8.7.2 PRICING ………………………..……………………………51
8.7.3 PROMOTION ………………………………………..……... 56
8.7.4 PRODUCT …………………….…………………………….. 61
8.8 BRANDING ……………………………...………...…………………… 63
8.9 NEW PRODUCT DEVELOPMENT ………………..………..……….... 67
UNIT 9
9.0 MARKETING RESEARCH AND SALESMANSHIP ………………………. 69
9.1 What is marketing research? …………………...………………………... 70
9.2 Conducting Marketing Research Process ………………………………... 71
9.3 SELLING ………………………………………….………..……………. 73
UNIT 10
10.0 THE BUSINESS PLAN
10.1 What is a business plan? …………………….…………..…………… 80
10.2 OUTLINE OF THE BUSINESS PLAN ……..……………………..... 80
UNIT 11
11.0 BUSINESS TRANSACTIONS …………………………………………..…. 84
11.1 Types of Business Transactions ………..…………………………..… 84
UNIT 12
12.0 BUSINESS DOCUMENTS ………………………….……………………… 86
12.1 Significance of business documents ……………..…………………… 86
12.2 Features of business documents …………………...………………..… 87
12.3 Types of business documents ……………………..………………...… 87
UNIT 13
13.0 BASICS OF ACCOUNTING ………………………………..……………… 90
13.1 Introduction to Accounting ……………………………………….…… 90
13.2 Double Entry Accounting …………………………………….……….. 91
13.3 Books of Original Entry (The Accounting Journals) ...…………..….… 93
13.4 The Cash Book ……………………………………………………....… 95
13.5 The Trial Balance ……………………………………………..……..… 96
13.6 The Accounting Equation and The Financial Position…………..……... 99
13.7 The Financial Statements ………………………………………...…… 104
13.7.1 The Balance Sheet …………………………………...……..…. 104
13.7.2 The Income statement ………………………………………..... 106
UNIT 14
14.0 BUDGETING …………………..……………………………….…………… 107
14.1 What is budgeting? ………….………………………………...……… 107
14.2 Objectives of budgeting ……….……………………………...…….… 108

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UNIT 15
15.0 MANAGING AN ENTERPRISE ……………………………………….… 110
15.1 What is Management ……………………………..…………………. 110
15.2 Planning and Decision Making ……………………..………….……. 110
15.3 Strategic planning ……………………………………..………….…. 111
15.4 Tactical planning ……………………………………….…………… 111
15.5 Operational planning ……………………………………..…………. 111
15.6 The planning process ……………………………………..…………. 111
15.7 Decision making ………………………………………….……….… 114
15.8 Steps in decision making …………………………………..…...…… 114
15.9 Organising ……………………………………………..…….……… 115
15.10 Coordinating …………………………………………….…….…….. 119
15.11 Controlling ……………………………………………...….….…….. 119
UNIT 16
16.0 LEGAL RESPONSIBILITIES AND INSURANCE
16.1 Legal responsibilities ……………………..…………………………. 121
16.2 Business Insurance ………………………..…………………….…… 124
UNIT 17
17.0 ENTREPRENEURSHIP EDUCATION
17.1 Terminologies of entrepreneurship in education ……………………. 126
17.2 Educating about, for and through entrepreneurship …………..…….. 127
17.3 Value creation as the common core of entrepreneurial education….. 127
17.4 Entrepreneurial competencies ……….…………………………….... 131
UNIT 18
18.0 REFERENCES …………………………………………………………………134

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UNIT 1

1.0 INTRODUCTION TO ENTREPRENEURSHIP

SPECIFIC LEARNING OUTCOMES

As you learn and go through this unit, you are expected to:
❖ Explain the concept of entrepreneurship and an entrepreneur,
❖ Discuss the characteristics of an entrepreneur.
❖ Describe entrepreneurial skills.

1.1 Entrepreneurship in History

Every roadmap, every plan, every idea has the beginning. Therefore, every success and every
failure whether in business, education or work has a history.
Entrepreneurship (en-trah-prih-NER-ship), the process of being an entrepreneur, is more than
just learning how to run a business. It can affect the economy, your community, and ultimately
the world in which we live. Here is a brief list of examples of entrepreneurs who have changed
the world in one way or another.
The 1800s
⦁ At 12, Thomas Edison already showed signs of being an entrepreneur. He was selling
newspapers, candy, and snacks at the local railroad station. By 14 he had his own newspaper
business. Gathering the daily news releases that were teletype into the station, he pulled out the
“scoops “And convinced over 300 Commuters to subscribe to his paper, which he called the
Weekly Herald. One of the most prolific inventors in history and holding over 1000 patents,
Edison is credited with numerous inventions that contributed to mass communication. One of his
inventions was the phonograph. Edison’s greatest achievement, however, was creating a practical
and economical system to generate and distribute electric light, heat, and power. That, and the
light bulb, changed the world forever.
⦁ P.T. Barnum was 60 years old when his circus staged its first show. The circus generated
$400,000 in sales in the first year. Later, it became known as the “Greatest Show on Earth” and
still tours all over the United States.

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The 1900s
⦁ In 1903, two friends—William Harley and Arthur Davidson—wanted to improve on the two-
wheeled bicycle, and the motor-cycle was born. Harley-Davidson was one of only two
manufacturers to stay af loat during the Depression of the 1930s. Now it has out ridden its
competition to become the world’s largest manufacturer of motorcycles, with revenues of over
$41 Million annually.
⦁ Maggie Lena Walker was a staunch advocate of human rights, humanitarian causes, self-
sufficiency, and race relations. With the philosophy of turning “nickels into dollars,” she became
the first woman to charter a bank in the United States. Her bank, the St. Luke Penny Savings
Bank, opened in 1903 with receipts totalling $9,430.44. Today it has assets of over $116 million.
Now known as the Consolidated Bank and Trust Company, Walker’s bank is the oldest
continuously operating minority-owned bank in the United States. Actively committed to its
philosophy, Walker remained its chairperson until her death. Among her many honours, she was
inducted into the U.S. Business Hall of Fame, a school was built in her honour, and her home is
designated as a historic site.
Present
⦁ In Sweden, Ingvar Kamprad learned at an early age how to make money from available
resources. By buying matches in bulk at a low price, he could sell them in smaller quantities at a
higher price. He invested the money he made in this and other small business ventures. When
Kamprad was 17, he founded IKEA, a furniture business. Today, IKEA has expanded to 300
stores in over 35 countries—and Ingvar Kamprad has become one of the ten wealthiest people in
the world.
⦁ Who can imagine a world without computers? In 1976, Stephen Wozniak and Steve Jobs
started a company with the goal of bringing personal computers to everyone. To help pay for
their venture, they sold some of their personal possessions for a total of $1,300. Weeks later, the
first Apple computers were sold. In 1980, Apple went public and made Wozniak and Jobs
multimillionaires. Today, Apple Sells such popular devices as the iPod and the iPhone

1.2 What Is Entrepreneurship?

One of the most essential ingredients in economy development of a country is entrepreneurship.
Entrepreneurship is the process of recognizing a business idea or opportunity and formulating or

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developing the opportunity into a business. It encourages to visualize, create a business plan and
acquire necessary skills that initiate the process of operating a successful actual business
venture.

“An economic term describing the process of bearing the risk of buying at certain prices
and selling at uncertain prices.” (18th century definition)
“The concept of bringing together the factors of production.” (19thcentury definition)
“A process involving innovation: bringing market innovation, product innovation, factor
innovation,and even organizational innovation to the world of business.”
“The action of organizing a business venture and assuming the risk for it.”
“The assumption of risk and responsibility in designing and implementing a business
strategy or starting a business.” (20th Century)

The goals in entrepreneurship is to present the skills and concepts needed to succeed in business,
introduce the major business models and develop a basic understanding of business terminology
in terms of developing a business plan as well as appreciate the element of risk in business
venture.
1.3 The concept of Entrepreneurship

In every human being is a vision. It is a quality that defines everyone’s life, as each one responds
to what they see, hear, feel and experience. The vision is supposed to be developed, nurtured and
given space to flourish. If squelched, thwarted, without air or stimulation the vision dies. The
term “entrepreneur” has been in existence since the 17th century. It originated from France,
where the phrase ‘entreprendre’ was first used by a Frenchman who took charge of the royal
contracts. The French used this term to widely describe a person who led a project which would
deliver valuable benefits to completion, a person who can manage uncertainty and bring success
in the face of challenges that would destroy a less well managed venture. In the 19 th century, the
French economist, J.B.Say focused on the business process rather than the practitioner. He
described an entrepreneur as someone who shifts economic resources out of an area of lower
productivity and into one of higher productivity and greater yield. Entrepreneur and
Entrepreneurship have since remained with no single definition existing.

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In’ Advanced Entrepreneurship’ Rwigemaand R. Venter argues that “….It is a process of
conceptualizing, organizing, launching and nurturing a business opportunity into a potentially
high growth venture in a complex within an unstable environment through innovation.
Meanwhile, Scott Shane in ‘General Theory of Entrepreneurship ’believes that Entrepreneurship
is an activity that involves the discovery, evaluation and exploitation of opportunities to
introduce new goods and services, ways of organising, markets, processes and raw materials
through organised efforts that previously existed”(Shane, S. 2003).
“Entrepreneurship is the act of forming a new organisation of value” (Bateman & Snell 1996),
‘’……the creation of new enterprise” (Bartol & Martin 1998) or ….. “process of creating
something new with value by devoting the necessary time and effort, assuming the
accompanying financial and receiving the resulting rewards of monetary and personal
satisfaction and independence (Hisrich & Peters 1998).

1.4 Who Is Entrepreneur?

Entrepreneurs are high-energy creative people, who are self-confident, have high levels of self-
esteem and are futuristic in their outlook as they seek to incessantly solve problems, take risks,
and learn from theirs and others’ failures. They thrive on change and have a natural
predisposition to show initiative and willingly accept personal responsibility for projects. They
harness all available resources within their scope in order to achieve success on their own terms.
Successful entrepreneurs learn to control and discipline their gift by combining this with a
business education (both formal and from the “school of hard knocks”) together with a
perseverance and an enjoyment of hard work. Driven by a righteous passion, they eventually
craft their success in spite of the many preceding disappointments and setbacks.
According to the Webster’s dictionary, an entrepreneur is “one who organizes, manages, and
assumes the risks of a business or enterprise.” This is a typical researcher’s description, written
without the privileged insight into the mind and spirit of what makes an entrepreneur tick.
The entrepreneurial skill-set would afford success in many fields of human endeavour; however,
the entrepreneur is drawn to the world of business and commerce. This is because their great
desire for independence, their love of a competitive environment, the business world’s reward
for objectivity over subjectivity, and the fact that excelling at this core societal realm makes the
greatest use of their talent.

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1.5 Characteristics of an entrepreneur

• Have passion and Motivation –Passion is all about getting that one thing that you
can work on over and over again without getting bored. If you are passionate
about something, no matter the challenges that you face, you can sail through it
because you believe in what you do. Entrepreneurship usually comes with all sorts
of challenges and one can withstand these challenges by looking for that one thing
he/she is passionate about. Your demonstration of passion and motivation will
determine your success in any entrepreneurial venture.
• Entrepreneurs are Risk takers –Entrepreneurship is all about taking a dive deep into
a future of uncertainty. Successful entrepreneurs are willing to risk their time and
money on unknown ventures, but they also keep resources, plans and bandwidth
for dealing with, “unknowns” in reserve. They evaluate the risk and determine if it
is worth the cost of their career, time and money.
• They have Self-belief, Hard work and disciplined action –They believe in
themselves, and enjoy what they do. They are confident and demonstrate
discipline & dedication to what they do.
• Successful entrepreneurs show Adaptability and Flexibility – Market needs are
usually dynamic i.e. changes are a recurring phenomenon. Successful
entrepreneurs will always welcome all the suggestions for optimization or
customization that enhances their offering and satisfies their clients and market
needs. Note that being inflexible about client or market needs will lead to failure.
Entrepreneurship is not simply about doing what you believe is good but also
making a successful business out of it.
• Self-Confident: -Most entrepreneurs are so self-confident that it can come off as
cocky or arrogant. But this is because they have to be. In order to take the
calculated risks that they take, the entrepreneur must be so confident that failure is
not a noticeable option until it becomes a reality.
• Conscientious

Entrepreneurs always make sure that what they do, is done well and thoroughly.

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 They cannot afford to be second best at what they do or do a less than an excellent
job.
• Disagreeable

Entrepreneurs are generally very opinionated. This opinionated nature allows

them to easily let their voice be heard when they do not think something should be
done a certain way. They believe that their way is best (Suzan Gordon, 2008).
• They simply do what needs to be done to reach their goals. They relentlessly seek and
test opportunities, and work to make those that have value a success. Behind every
successful entrepreneur is a series of failures and bad decisions that did not stop them
from trying again. Being able to handle failure and continue regardless. Ability to listen.
Remarkable decision making abilities. (Especially under tough circumstances)
• Creativity and problem solving skills
• Ability to learn new skills quickly
• Willingness to take on many roles in the beginning (having to do everything.)
• Determination to Succeed: - Be able to successfully grow the venture, by setting clear
targets and staying focused, irrespective of the hurdles which may come in the way to
success is must for the entrepreneur. They look at the bigger picture about outcomes
Independence. They like to make decisions and take command rather than being
commanded, prefer to give directions rather than being directed and are good with the
outcomes of their actions whether its profitable or not. They like to take initiatives.
• Risk Taking: - The loci of control is within- i.e. they are the masters of their own fate and
do not shy away from taking risks. They make all efforts to be profitable without leaving
things on luck or fate.
• Ability to control: - They put greater control on socio-economic behaviour of their
enterprise. They change actions as and when needed by the enterprise.
• Perseverance: - It means commitment and putting in untiring relentless efforts in
achieving the goals of enterprise.
• Flexibility: - They are flexible in decision making and changing the course of action,
adjusting themselves to the change and keep their options open. Usually their decisions
are constantly being evaluated and required changes are implemented according to
conditions.

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 • Analytical ability of mind: - No prejudice or bias is entertained. No emotional approach
is considered for business decision making and rational decision making is encouraged.
• Confronting uncertainty: - They have optimistic approach to deal with uncertainties, and
every uncertain condition may be an opportunity for them. Even under unfavourable
conditions the results must be achieved which requires unusual insight and talent.
• Stress Takers: They have ability to work in tough situations. They have to work for
extended hours and may have to accomplish tasks within short notice without
compromising on the quality. They have ability to deal with physical and psychological
pressure.
• Innovative and creative: - They have unique and out-of the box thinking ability which
help them stand out from the crowd. They propound new thoughts and ideas to develop
new products and services or new suppliers in order to establish a new market and
redesign the organization.
• Ability to mobilize resources: - They have ability to fully make use of all resources
available to them. Generally, the 6M approach- Man, machinery, material, money,
market and method to convert a raw input to final product.
• Leadership: - Achieve a common goal by organizing and aligning a group of people
through proper communication is called leadership which includes team work, accurate
guidance and responsibility towards co-workers. Leadership includes good
communication skills.

1.6 Factors in entrepreneurship

Environment Factors Influencing Entrepreneurship

Entrepreneurial Environment: – Is the sum total of external factors within which an enterprise
operates. Entrepreneurs do not emerge at their own. Characteristics of Environment such as: 1.
Dynamic 2. Uncontrollable and 3. External effects on the business in varying degrees pose
threats and offer opportunities
• Economic factors affecting
• Social factors

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 • Psychological factors
• Facilitating factors
• Competitive factors

Economic Factors: Economic factors include; financial assistance from institutional sources,
accommodation in industries, attitude of the government towards upcoming entrepreneurs,
encouragement from large businesses, machinery on hire-purchase, labour conditions, raw
materials size and composition of the market.
Social Factors: social factors include family background, social status, religion, social mobility
and social marginality.
Psychological Factors: include; need for achievement, withdrawal of status, and respect.
Competitive Factors: Competitive factors include; Porter’s 5 Forces Model, Potential Entrants
into the market, Rivalry am
ong existing firms, Substitutes, Suppliers, and buyers’ behaviour.
Facilitating Factors: include; experience and training, financial management, occupational and
geographical mobility. Key factors influencing include; 1. Resources, 2. Experience,
3. Education, 4. Language, 5. Culture, and 6. Nature of Enterprise

UNIT 2

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2.0 THEORIES OF ENTREPRENEURSHIP

OBJECTIVE

- Discuss at least two psychological and two economic theories of

entrepreneurship.

A theory may be defined as a collection of properly argued ideas about a particular phenomenon.

A theoretical framework could be described as the logical structure within which the thinking
about a particular phenomenon can be placed and in which the relationships between the
constituent elements (or concepts) can be understood.

2.1 Why is a theoretical framework important to any field of study?

A theoretical framework can assist us in being able to explain a phenomenon (i.e understand it)
and to therefore predict and possibly influence its occurrence. Such a framework is particularly
critical to a field that is yet to be fully understood because it provides for a basis upon which further
study can take place. Questions such as “what causes the other and how?” can then be considered
within this framework. Outcome of such study may be useful to different actors in society,
including researchers, training providers, development practitioners, policy makers and private
sector players.

Entrepreneurship as a phenomenon has had many ideas that have been advanced in attempts to
explain it as a whole or its various aspects. These ideas are argued from different perspectives
which have been informed by various factors (history, underlying scientific discipline, philosophy,
etc).

Cai et al (2011) provide a synthesis of the various specific theories that were used in articles
published in six leading entrepreneurship Journals over the period 1998 to 2010. These are
captured in the table below:

Table x: List of related theories applied in entrepreneurial literature

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This chapter does not attempt to go into any detail of each of the listed specific theories, but instead
selects only a few of the broader and more encompassing theoretic frameworks employed by
available literature (in which some of the specific theories in the above table are captured) and
uses them to present entrepreneurship from different perspectives. The discussion starts with the
economic perspective which, with due respect, has had the most significant influence on
entrepreneurship development. We then move to consider the psychological perspectives which
have been gaining momentum especially over the recent past. These latter perspectives are
particularly relevant to our consideration of entrepreneurship in a developing country context.
There may in fact be growing views that the theories of entrepreneurship should particularly be
grounded in psychology and sociology, if they are going to have any theoretical validity and
developmental relevance.

2.2 Economic Theories of Entrepreneurship

It is important to recognise that the thinking in the field of entrepreneurship has been strongly
influenced by economic theory.

Economics is a very ancient discipline that involves the study of how society produces and
distributes goods and services.

Various interrelated theories have been advanced from different economic perspectives. We will
focus on two main categories that capture most of the prominent theories, and use these to show
how economic thinking has evolved with regard to entrepreneurship.

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Classical Economic Theory

Economic theory is concerned with two major questions about society:

1. First question is: “How does a society create wealth?”

Without new wealth, as population increases, per capita wealth will decline. Thus, any
society that wants to improve its standard of living (thus getting and staying out of a state
of poverty) must find ways to continuously increase overall wealth.

2. The second question is: “How does a society distribute wealth among its members?”

Unless there is some form of equitable distribution, less fortunate members of society (who
may remain in poverty or slip into it) will be dissatisfied and this might result in instability.

Entrepreneurship can actually be identified within the concept of capitalism as propounded by “the
father of modern economic theory”, Adam Smith in his 1776 book The Wealth of Nations. Smith
perceived the capitalist as an owner-manager who combined basic resources- land, labour and
capital – into a successful industrial enterprise.

Smith described how the capitalist was essential in wealth creation and wealth distribution in
society. Over time, the French word “entrepreneur” (meaning “to undertake”) begun to be used to
identify this owner-manager of a new industrial enterprise.

Jean-Baptiste Say is another classical theorist that helped extends Cantillon’s thoughts by
identifying additional roles of the entrepreneur as being a leader who brings human capital together
in order to build a single productive organism. Say asserts that for this to happen, the entrepreneur
“requires a combination of moral qualities that are not often found together; Judgment,
perseverance, and knowledge of the world as well as of business” (Say, 1803 (1971), p. 330–331).
He also acknowledges the existence of factors outside the control of the entrepreneur, and that
these factors could result in business failure irrespective of the entrepreneur’s abilities.

Classical capitalism as an economic theory was criticized for lacking a rigorous logical framework
and foundation for mathematical description that would provide a predictive characteristic to the
model.

Neo-classical Economic Theory

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In the late 19th Century Leon Walras (1874) and Alfred Marshall (1890), separately, developed
similar models of capitalist economics that sought to address the above-mentioned weakness in
the classical economic model.

The key concept of these alternative models where that markets consist of many buyers and many
sellers who interact so as to insure that supply equals demand – a state of perfect market
equilibrium that distributes wealth among buyers and sellers and creates wealth in the process.
Neo-classical economics assumed that as the size of the firm increased, the cost of production per
unit decreased. Thus, the theory suggests that, compared to small firms, large firms are more
profitable (and so do a better job at wealth creation).

Because of its logical framework and predictive power, neoclassical economics had for a good part
of the 20th century been the mainstream economic theory in the United States. But critics of this
theory (e.g. Veblen, 1890) felt strongly that neo-classical theory only achieved its predictive
capability by eliminating the unpredictable behaviour of the entrepreneur who assumed the risks
of an uncertain reality and thrived on exploiting a market that was really never in a state of perfect
equilibrium.

Joseph Schumpeter (1934), another of these critics of neoclassical economics argued that
entrepreneurship was an important part of capitalism because innovation (which is the hallmark of
entrepreneurship) was the key driver to wealth creationand that it had an important effect on wealth
distribution. By being able to significantly alter market structures via the creation of new demand
arising from the introduction of new products entrepreneurs, in Schumpeter’s view, had a “creative
destruction” that caused established firms with older products or services to decline. This line of
thinking marked the emergence of what is now known as entrepreneurship economics or the
economics of entrepreneurship

Ongoing research effort has sought to better understand entrepreneurship in the economic context
and so provide a theory with predictive capability just like the now largely discarded neoclassical
theory. Kirchhoff (1994) seems to have taken a step in this direction by developing a "dynamic
capitalism typology" that shows the complex relationship between the rate of innovation and the
rate of firm growth. Typologies assist in organizing existing knowledge into categories that help
explain relationships and guide the development of theoretical models.

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Whilst even Kirchhoff admits that the typology is a rather oversimplification of more complex
realities, it nonetheless greatly helps in understanding the different entrepreneurial manifestations
being witnessed in different parts of the world. It is possible to relate this typology to
entrepreneurship in a developing country context and so better understand the specific issues that
may exist.

Below is a brief discussion based on the above matrix by Kirchhoff.

Economic Core Firms

These are said to be the most common form of entrepreneurship in the developed world.

Economic core firms are low-innovation and low-growth firms that primarily seek to satisfy the
owner-manager’s desires or needs while also fulfilling a specific need in a small market, and
without aspiring for significant growth. They are probably likely to become even more prominent
especially in Northern Europe where societies continue to shift into a post-materialistic phase
characterized by a lack of desire to pursue significant wealth. The developing world has its own
opposite scenario (pre-materialistic) in which sociological aspects of life (e.g the spirit of Ubuntu
in sub-saharan Africa) are valued more than economic ones. Enterprise owners may be willing to
forgo income in exchange good relationships.

Constrained Growth Firms

These firms, which are likely to be prevalent in emerging economies, have high rates of innovation
but growth is constrained by the lack of resources. The source of constraint may be internal or
external, though one could argue that even internal constraints (e.g. relevant skill, finance,

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technology, etc) may be largely due to external circumstances (e.g low levels of skill, financial
inclusion and technological knowhow).

Constrained growth firms tend to make easy prey to better-resourced competitors, especially those
from more developed countries. They tend to find their products copied and markets devoured by
their competitors. Or they may simply be “swallowed” (bought out) by the competitors.

Ambitious Firms

Some firms can achieve high growth with only a limited number of innovations. A single
successful product or service can sustain high growth for many years in a large market like the
United States, China or South East Asia. However, since markets do not remain stable, an
ambitious firm’s growth rate will eventually decline if new products or services are not introduced.

Glamorous Firms

Ultimately, high growth rates can only be sustained over time with high rates of innovation.

In recent times, most firms in this category have tended to be technology-based firms producing
products that allow constant development. Kirchhoff calls these firms "glamorous firms' because
they often attract high media attention and receive local and national awards for their successes
(Short & Dunn, 2002).

2.3 Psychological Theory of Entrepreneurship

The Traits Theory of Entrepreneurship

We will start with looking at the traits, and within these, two relevant theories may be identified:
(1) the traits theory and (2) the psychodynamic theory. Because the psychodynamic theory has not
gained much traction over time, we will opt to restrict ourselves to the traits theory.
The two basic assumptions underpinning the traits theory, as applied to entrepreneurship, are that:

(1) The person who decides to create a new enterprise (hence the entrepreneur) has a different
psychological profile from persons that do not make this decision.

(2) The person who is more successful in entrepreneurial endeavours has a different
psychological profile from those that are less successful. (Veciana, 2007)

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Based on the above assumptions, it then becomes important to identify what attributes aid the
entrepreneurial decision process and the extent of entrepreneurial success.
You may have noticed that these two assumptions directly relate to entrepreneurship as defined by
Bygrave (1994) when he refers to (1) opportunity identification and (2) opportunity exploitation.
What we are therefore now really seeking to understand (through the use of the traits theory of
psychology) is what personal attributes assist in identifying good entrepreneurial opportunities and
also assist in successfully exploiting these opportunities.
Theoretically, this should then assist in distinguishing entrepreneurs from those that are not, and,
even further, also help in identifying different levels of entrepreneurship amongst those that are.
This has value to individuals, entire communities, countries and even the world at large. If
entrepreneurship is indeed good for individuals and society, then those that may not be as
entrepreneurial should be assisted to see where they are so they could seek to develop themselves.
Part of doing this may be to identify and learn from entrepreneurs.
Society as a whole should ideally be interested in identifying and supporting those that are found
to be entrepreneurial. Most cultures in developing countries are closely knit and so could be fertile
ground for the spread of entrepreneurship. But this can only happen if such societies understand
entrepreneurship, appreciate its value to them, and therefore support it.
Traits Associated with Entrepreneurs
A significant amount of empirical investigations has shown that the main psychological traits and
inner motivations of the entrepreneur include the following (Veciana, 1989):
• Need of independence
• Need for achievement
• Internal locus of control
• Risk-taking propensity
• Unsatisfied or “marginated” person
• Intuition
• Tolerance of ambiguity

The Theory/Concept of Entrepreneurial Self-efficacy (ESE)

This is a concept from social learning theory that is employed in arguing that opportunities are
psychologically constructed and not just stumbled upon. Self-efficacy stems from the work of
Bandura (1997) and refers to a mental disposition (or attitude) of viewing situations as controllable
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and positive. Put differently, it refers to an individual’s belief in their personal capability to
accomplish a job or a specific set of task. Krueger (2000) advanced the view that the perception of
opportunities depends on an individual’s self-efficacy

This view is drawn from social psychology where Kim & Hunter (1993) show the following
relationship between attitudes, intentions and behaviour

Predict Predict
Attitudes Intentions Behaviour

Krueger (1999) had pulled this relationship into entrepreneurship and asserted that entrepreneurial
behaviour is informed by entrepreneurial intent which, in turn, is backed by entrepreneurial self-
efficacy (ESE) as the underlying attitude.

Lindsay et.al (2010) therefore define ESE as the belief in one’s ability to successfully engage in
entrepreneurial behaviour. This belief is rational and linked to experience and not merely
perceived self-confidence (Taylor 1991). Based on past relevant successes (or even failures!), the
entrepreneur will be in a better position to predict outcome of personal effort.

Based on the above, it can therefore be said that if one sees themselves as capable and competent,
they are more likely to see a course of action as feasible, and hence more likely to see an
opportunity.

Proponents of this view criticise theories that focus on static personality traits or predispositions
of individuals, arguing that these have been found to be ineffective at predicting entrepreneurial
activity (e.g. Sandberg and Hofer, 1987).

ESE being a cognitive construct that links more closely to behaviour, has instead been felt by some
(e.g Bandura, 1995) as being more reliable. In fact, Chen et al (1998) pioneered research work that
seemed to confirm this view.

It is further believed that individuals can develop self-efficacy through prior cognitive, social and
physical experiences (Bandura 1986, Gist, 1987). From this view, formal education therefore
becomes one means through which ESE can be developed (Izquierdo & Buelens, 2008).

High levels of self-efficacy have an important role in helping individuals sustain effort until goals
are reached.

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For the entrepreneur such an attitude can facilitate transition from the nascent stage and through
the start-up phase when ambiguities pertaining to the venture are often high (De Noble et al, 1999).
This role extends to entrepreneurial performance during the phases when the venture is more
established (innovativeness and risk-taking remain key to continued (Stajkovic and Luthans 1998;
Randhawa 2004).

Chen et. al (1998) go on to identify five factors that they believe constitute ESE: marketing,
innovation, management, risk-taking, and financial control.

Using these factors, they were able to provide research evidence that ESE is one of the strongest
distinguisher of entrepreneurs from managers. It is clear from their work that ESE is one concept
in the psychology of entrepreneurship that has probably not been utilised enough, especially in a
developing country context and particularly in entrepreneurial assessment, education, counselling,
and community intervention.

REVISION QUESTION

Briefly, discuss two psychological and two economic theories of entrepreneurship with
relevant examples.

UNIT 3

3.0 THE ENTREPRENEURIAL PROCESS

OBJECTIVE:
- Discuss the entrepreneurial process with relevant examples.

The entrepreneurial process is a methodical way of starting a new venture which involves four
steps. The entrepreneur realizes, evaluates, and develops an opportunity by defeating forces of
resistance (Dhenak, 2010). The four phases include identifying and evaluating an opportunity,
developing a business plan, ascertaining resource needs, and managing the resulting enterprise
(Barringer & Ireland, 2010). Each of these steps is in an order one to four in ranking as to the

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importance of each method. The elements in the steps in this discussion will be from an individual
entrepreneurial and corporate entrepreneurial perspective.

3.1 The Four Steps in the Entrepreneurial Process

1. Opportunity Identification.

Stage one of the entrepreneurial process deals with opportunity identification. An opportunity by
definition is a favorable set of circumstances which creates a need for a new product, business, or
service (Barringer & Ireland, 2010). Opportunity identification is the process by which the
entrepreneur comes up with a prospective idea for a new venture. Identifying the opportunity is
not simple. Identification takes research, exploration, and evaluation of current needs, demands,
and trends from consumers and others (Dhenak, 2010). With researching and surveying, the
product or service can develop. The organization or individual can now innovate what is lacking
as long as the market exists for the opportunity to present itself. If the market is mature the window
of opportunity is closed (Barringer & Ireland, 2010). Qualities through innovation add value to a
product, service, or business. The qualities are attractiveness, durability, timeliness, and fixation
to the product. These four conditions are what the consumer and end user want. Evaluating the
opportunity through observing environmental forces, social forces, technology advances, and
political or regulatory changes are attributes to thriving in any industry (Dhenak, 2010). From an
individual perspective, opportunity identification and evaluation is the most important element
because it identifies general trends, needs, and risks that involve the original idea which the
entrepreneurial process can improve.

2. Developing a Business Plan

The second stage is developing a business plan. Business plan development is an integral piece for
submitting a proposal for an entrepreneurial or intrapreneurial business (Harjai, 2012). The
organization or entrepreneur develops a description of the future direction of the business. A good
business plan must be in place that displays a distinct opportunity (Harjai, 2012). The process in
business plan formulation can be the most time-consuming stage for the individual entrepreneur
or organization (Harjai, 2012). An example of this is researching and doing a feasibility analysis
for business plan formulation (Barringer & Ireland, 2010). Testing the viability of the idea gives

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the ability to change the thought process from idea to a business plan. Business plan development
is part of strategic thinking and planning and works well with organizational activities. On an
individual basis, the sole entrepreneur must rely on brainstorming in smaller focus groups. From
a corporate perspective, business planning is the essential element to the entrepreneurial process.

3. Determining and Allocating Resources

The third stage is determining and allocating resources. Ascertaining resource needs is a
requirement to opportunity and business plan implementation (Dhenak, 2010). Assessing the risks
in association with insufficient or inappropriate resources must be set apart from useful ones
(Harjai, 2012). The question that needs an answer here is: Can the organization or individual
propositioning the venture be capable of obtaining sufficient resources to move forward? The
entrepreneurial process calls for securing financial and non-financial resources as well as
intellectual proprietary protection where it applies. Financial resources include start-up costs, the
financial performance of like business, and economic attractiveness (Barringer & Ireland, 2010).
Non-financial resources include skill sets and labor pools for potential employees (Barringer &
Ireland, 2010). Resource allocation and availability are important to corporations because
sustainability and profit depend on proper planning and understanding the physical internal and
external environments. For the individual gaining funding from investors and loans and knowing
where to cut cost in execution and implementation is the most important issue with resource
determination and allocation. An example from an individual perspective is making a product via
a manufacturer that already exists as opposed to manufacturing the product themselves.

4. Managing the Enterprise

The fourth stage is managing the enterprise. Once resources are secure with the entrepreneurial
process, the business plan implementation can take place. Managing the company means
examining operational issues that will occur when implementation begins and throughout the
entire business plan cycle (Barringer & Ireland, 2010). The management process involves
implementing structure and business style while determining variables for success (Harjai, 2012).
Establishing a control system to identify and resolve any problem areas will help the management
process. Lack of experience can give the individual entrepreneur issues with business growth and

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administration. Individuals fare better in the entrepreneurial process improving on existing ideas
that have a strong consumer focus and demand.

3.2 Conclusion

A wide range of factors influences people and organization in the entrepreneurial process. These
factors include environmental, social, personal, and economic influences. There are four steps or
stages in the entrepreneurial process:

1. Spot and assess the opportunity

2. Draw up a business plan
3. Establish resources
4. Run the company (Dhenak, 2010).

Each step ranks in importance; the first is the most important followed by the second, third, and
fourth. All stages are a part of the entrepreneurial process.

REVISION QUESTION

1. Discuss the four steps in entrepreneurial process with practical examples. (20 marks)
2. Defend clearly why each step is relevant/necessary. (10 marks)

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UNIT 4
4.0 FORMS OF LEGAL BUSINESS OWNERSHIP

OBJECTIVES:

- State forms of legal business ownership.

- Discuss the forms of legal business ownership with examples.

There are different forms of business ownership from which an entrepreneur can choose from.
These are; Sole proprietorship, Partnership, Cooperative and Corporation/Company.

1. Sole Proprietorship

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A sole proprietorship, also known as a sole trader or simply a proprietorship, is a type of business
entity that is owned and run by one individual and in which there is no legal distinction between
the owner and the business. The owner receives all profits (subject to taxation) and has unlimited
responsibility for all losses and debts. Every asset of the business is owned by the proprietor and
all debts of the business are the proprietor's. This means that the owner has no less liability than if
they were acting as an individual instead of as a business. It is a "sole" proprietorship in contrast
with partnerships.

2. Partnerships
A partnership is an arrangement where entities and/or individuals agree to cooperate to advance
their interests. In the most frequent instance, a partnership is formed between one or more
businesses in which partners (owners) co-labour to achieve and share profits or losses…
Partnerships have widely varying results and can present partners with special challenges. Levels
of give-and-take, areas of responsibility, lines of authority, and overarching goals of the
partnership must all be negotiated. While partnerships stand to amplify mutual interests and
success, some are considered ethically problematic, or at least debatable.
3. Cooperative Society

A co-operative society is a voluntary association started with the aim of service of its members. It
is a form of business where individuals belonging to the same class join their hands for the
promotion of their common goals. These are generally formed by the poor people or weaker section
people in the society. It reflects the desire of the poor people to stand on their own legs or own
merit. The philosophy of the formation of co-operative society is "all for each and each for all".

A co-operative denotes a form of organization wherein persons voluntarily associate together as

human beings on the basis of equality for the promotion of economic interests of themselves.

A cooperative (also co-operative; often referred to as a co-op) also refers to business organization
owned and operated by a group of individuals for their mutual benefit. Cooperatives are defined
by the International Cooperative Alliance's Statement on the Cooperative Identity as autonomous
associations of persons united voluntarily to meet their common economic, social, and cultural
needs and aspirations through jointly owned and democratically controlled enterprises. A

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cooperative may also be defined as a business owned and controlled equally by the people who
use its services or by the people who work there. Cooperative enterprises are the focus of study in
the field of cooperative economics.

A co-operative society has been formed behind the following broad objectives.

• To render service to its members instead of making profits.

• It encourages a state mutual help in the place of competition.
• It assures a state of self-help in the place of dependence.
• It develops a state of moral solidarity in the place of unfair business activities.

4. Company/Corporation
A company is a form of business organization. It is a collection of individuals and physical assets
with a common focus and an aim of gaining profits. This collection exists in Law and therefore a
company is considered a "Legal Person"… In English law, and therefore in the Commonwealth
realms, a company is a form of body corporate or corporation, generally registered under the
Companies Acts or similar legislation. It does not include a partnership or any other unincorporated
group of persons.

REVISION QUESTIONS

1. Discuss the forms of businesses available that an entrepreneur can choose from.
Clearly show with examples the advantages and disadvantages of each. (20 marks)
2. From the forms of businesses discussed in question one, which one is suitable for a
starter up entrepreneur. Defend your answer. (10 marks)

UNIT 5

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5.0 SOURCES OF FINANCES

OBJECTIVE:

- Discuss the various sources of finance for business.

The sources of finances for purposes of investing or recapitalizing a business enterprise are diverse.
The most common sources however, include;

➢ short, medium and long-term loans from banks (debt)

➢ issuing shares
➢ family donations
➢ donations from friends
➢ inheritance from relatives
➢ grants from the government/NGOs
➢ salary
➢ selling of an asset
➢ savings

UNIT 6
6.0 SWOT ANALYSIS

OBJECTIVE

- Use SWOT analysis to analyse a business ideas.

6.1 S.W.O.T

SWOT is an acronym for Strengths, Weaknesses, Opportunities and Threats. By definition,

Strengths (S) and Weaknesses (W) are considered to be internal factors over which you have some

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measure of control. Also, by definition, Opportunities (O) and Threats (T) are considered to be
external factors over which you have essentially no control.

SWOT Analysis is the most renowned tool for audit and analysis of the overall strategic position
of the business and its environment. Its key purpose is to identify the strategies that will create a
firm specific business model that will best align an organization’s resources and capabilities to the
requirements of the environment in which the firm operates.

In other words, it is the foundation for evaluating the internal potential and limitations and the
probable/likely opportunities and threats from the external environment. It views all positive and
negative factors inside and outside the firm that affect the success. A consistent study of the
environment in which the firm operates helps in forecasting/predicting the changing trends and
also helps in including them in the decision-making process of the organization.

An overview of the four factors (Strengths, Weaknesses, Opportunities and Threats) is given
below-

1. Strengths - Strengths are the qualities that enable us to accomplish the organization’s
mission. These are the basis on which continued success can be made and
continued/sustained.

Strengths can be either tangible or intangible. These are what you are well-versed in or
what you have expertise in, the traits and qualities your employees possess (individually
and as a team) and the distinct features that give your organization its consistency.

Strengths are the beneficial aspects of the organization or the capabilities of an

organization, which includes human competencies, process capabilities, financial
resources, products and services, customer goodwill and brand loyalty. Examples of
organizational strengths are huge financial resources, broad product line, no debt,
committed employees, etc.

2. Weaknesses - Weaknesses are the qualities that prevent us from accomplishing our
mission and achieving our full potential. These weaknesses deteriorate influences on the

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 organizational success and growth. Weaknesses are the factors which do not meet the
standards we feel they should meet.

Weaknesses in an organization may be depreciating machinery, insufficient research and

development facilities, narrow product range, poor decision-making, etc. Weaknesses are
controllable. They must be minimized and eliminated. For instance - to overcome obsolete
machinery, new machinery can be purchased. Other examples of organizational
weaknesses are huge debts, high employee turnover, complex decision making process,
narrow product range, large wastage of raw materials, etc.

3. Opportunities - Opportunities are presented by the environment within which our

organization operates. These arise when an organization can take benefit of conditions in
its environment to plan and execute strategies that enable it to become more profitable.
Organizations can gain competitive advantage by making use of opportunities.

Organization should be careful and recognize the opportunities and grasp them whenever
they arise. Selecting the targets that will best serve the clients while getting desired results
is a difficult task. Opportunities may arise from market, competition, industry/government
and technology. Increasing demand for telecommunications accompanied by deregulation
is a great opportunity for new firms to enter telecom sector and compete with existing firms
for revenue.

4. Threats - Threats arise when conditions in external environment jeopardize the reliability
and profitability of the organization’s business. They compound the vulnerability when
they relate to the weaknesses. Threats are uncontrollable. When a threat comes, the stability
and survival can be at stake. Examples of threats are - unrest among employees; ever
changing technology; increasing competition leading to excess capacity, price wars and
reducing industry profits; etc.

6.2 Advantages of SWOT Analysis

SWOT Analysis is instrumental in strategy formulation and selection. It is a strong tool, but it
involves a great subjective element. It is best when used as a guide, and not as a prescription.

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Successful businesses build on their strengths, correct their weakness and protect against internal
weaknesses and external threats. They also keep a watch on their overall business environment
and recognize and exploit new opportunities faster than its competitors.

SWOT Analysis helps in strategic planning in the following manner-

a. It is a source of information for strategic planning.

b. Builds organization’s strengths.
c. Reverse its weaknesses.
d. Maximize its response to opportunities.
e. Overcome organization’s threats.
f. It helps in identifying core competencies of the firm.
g. It helps in setting of objectives for strategic planning.
h. It helps in knowing past, present and future so that by using past and current data, future
plans can be chalked out.

SWOT Analysis provide information that helps in synchronizing the firm’s resources and
capabilities with the competitive environment in which the firm operates.

6.3 Limitations of SWOT Analysis

SWOT Analysis is not free from its limitations. It may cause organizations to view circumstances
as very simple because of which the organizations might overlook certain key strategic contact
which may occur. Moreover, categorizing aspects as strengths, weaknesses, opportunities and
threats might be very subjective as there is great degree of uncertainty in market. SWOT Analysis
does stress upon the significance of these four aspects, but it does not tell how an organization can
identify these aspects for itself.

There are certain limitations of SWOT Analysis which are not in control of management. These
include-

a. Price increase;
b. Inputs/raw materials;
c. Government legislation;

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 d. Economic environment;
e. Searching a new market for the product which is not having overseas market due to import
restrictions; etc.

Internal limitations may include-

a. Insufficient research and development facilities;

b. Faulty products due to poor quality control;
c. Poor industrial relations;
d. Lack of skilled and efficient labour; etc

TASK
Identify one business idea/activity and use SWOT to analysis the relevance of the
idea/activity.

UNIT 7

RISK MANAGEMENT

OBJECTIVE:
- Define risk and briefly discuss the sources of risks and uncertainties.
- Demonstrate knowledge on risk management.

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To farmers, changes in weather, prices and other factors between the time the decision is made to
cultivate and the final outcome is known can make good decision to turn very bad. Because of time
lag in agricultural production and our inability to predict the future accurately, there are varying
amounts of risk and uncertainty in all farm Management decisions. If everything was known with
certainty, decision would be relatively easy. However, in the real world more successful managers
are the ones with the ability to make the best possible decisions, and courage to make them when
surrounded by risk and uncertainty.

7.1 Definition of risk and uncertainty

In life, it is difficulty to attain asituation where all possible outcomes are known for a given
management decision and the probability associated with each possible outcome is also known.
Riskrefers to variability of outcomes which are measurable in an empirical or quantitative manner.
Risk is insurable.
Uncertainty refers to future events where the parameters of probability distribution (mean yield
or price, the variance, range or dispersion and the skew and kurtosis) cannot be determined
empirically. Uncertainty is not insurable. It is when one orall possible outcomes are unknown,
the probability of the outcomes is unknown or neither the outcomes nor the probabilities are
known.

7.2 Sources of risk and uncertainty

The most common sources of risk are.
1.Production risk: Crop and livestock yields are not with certainty before harvest or finals.
Weather, diseases, insects, weeds are examples of factors which cannot be accurately predicted
and cause yield variability.
Even if the same quantity and quality of inputs are used every year, these and other factors will
cause yield variations which cannot be predicted at the time most input decision must be made.
The yield variations are examples of production risk. Input prices have tended to be less variable
than output prices but still represent another source of production risk. The cost of production per
unit of output depends on both costs and yield. Therefore, cost of production is highly variable as
both input prices and yield vary.
2. Technological risk: Another source of production risk is new technology. Will thenew

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technology perform as expected? Will it actually reduce costs and increase profits? These
questions must be answered before adopting the new technology.
3.Price or marketing risk: Variability of output prices is another source of risk. Commodity
prices vary from year to year and may have substantial seasonal variation within a year.
Commodity prices change for number of reasons which are beyond the control of individual
entrepreneurs.
4. Financial risk: Financial risk is incurred when money is borrowed to finance the operation of
the business. There is some chance that future income will not be sufficient to repay the debt.
Changes may take place in the interest rates, scale of finance, and ability of the business to generate
income.

7.3 Methods of reducing risk and uncertainty

The various methods which can be used to reduce risk are discussed hereunder.
1. Diversification: Production of two or more commodities on the farm/business may reduce
income variability if all prices and yields are not low or high at the same time.
2. Stable enterprises: Production risk can be reduced by careful selection of the enterprises with
low yield variability. For example, irrigation will provide more stable crop yields than dry land-
farming. This is particularly important in areas of low rainfall and unstable climate.
3. Insurance: For phenomena, which can be insured, possible magnitude of loss is lessened
through converting the chance of large loss into certain cost.
4. Flexibility: Diversification is mainly a method of preventing large losses. Flexibility is a method
of preventing the sacrifice of large gains. Flexibility allows for changing plans as time passes,
additional information is obtained and ability to predict the future improves.
5. Spreading sales: Instead of selling the entire commodityoutput at one time, entrepreneurs, e.g
farmers prefer to sell part of the output at several times during the year. Spreading sales avoids
selling all the crop output at the lowest price of the year but also prevents selling at the highest
price.
6. Hedging: It is a technical procedure that involves trading in commodity through a commodity
broker.
7. Contract sales: Producers of some special type of crops like grocery, vegetables etc. often
sign a contract with a buyer or processor before producing. A contract of this type removes the

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price risk at planting time.
8. Minimum support price: The government purchases the commodity from the
manufacturers/farmers if the market price falls below the support price.
9. Networth: It is the net worth of the business that provides the solvency, liquidity and much of
the available credit.

REVISION QUESTIONS

1. Define risk and briefly discuss the sources of risks and uncertainties. (15 marks)
2. Identify one business venture and clearly state the risk in that business. Discuss
ways of preventing the stated risk in that business. (20 marks)

UNIT 8

1.0 MARKETING

OBJECTIVES
By the end of this unit, you should be able to:
• Define marketing
• Discuss the marketing philosophy and marketing approaches.
• Discuss the marketing mix.
• Describe branding

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 • Demonstrate marketing research
• Explain the selling process

8.1 What is marketing?

Marketing is a “social process involving the activities necessary to enable individuals and
organizations to obtain what they need and want through exchanges with others and to develop
ongoing exchange relationships” (Mullins and Walker, 2014 : P.5).
Kotler (2005), defines marketing as the “social process by which individuals and groups obtain
what they need and want through creating, offering and exchanging products and services that
have value with others.”
8.2 What is a market?
A market consists of individuals and organizations who are interested and willing to buy a
particular product to obtain benefits that will satisfy a specific need or want, and who have the
resources to engage in such a transaction.
8.3 The marketing philosophy
Profitable business generally follows a plan for success called the marketing concept. The
marketing concept recognizes two main objectives for business. These are to satisfy customers’
needs and wants, and to make a profit. To achieve these two goals, businesses spend money on
research to learn what consumers need and want. Businesses also choose short and long term
objectives that will guide them as they seek success in both consumer satisfaction and in increasing
profits.
In tracing the development of the marketing concept, it is customary to chart three successive
stages in the evolution of modern business practice. These stages are as follows:
i) The production orientation.
ii) The sales concept orientation.
iii) Marketing Orientation.

i). Production Orientation

The production orientation to marketing focuses on producing goods and services. High production
efficiency, often through large scale production of standardized items, is the central focus. It is
believed that customers would purchase the products as long as they are of reasonable quality.

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ii). Sales Orientation
At one time most companies were sales oriented. That is, their goods and services were produced
and sold without regard for consumer preferences. Little attempt was made to research consumers’
needs or desires. Goals were limited to short term profits. The main aim was to sell what the firm
makes, rather than to make what the customer want.
iii). Marketing Orientation
The marketing concept or orientation holds that the key to successful and profitable business rests
with identifying the needs and wants of consumers and providing products and services to satisfy
them. It is the work of the producer to identify the needs and wants and preferences of the consumer
and then satisfy them better than the competitors would.
Every marketing oriented firm focuses on consumer satisfaction and directs its resources to
produce the goods and services that customers want. A successful marketing oriented firm sets
long-range goals that are achieved by responding to changing and emerging consumer preferences.

8.4 Marketing Approaches

There are two approaches that a firm can use to sell their products in the marketplace. These are
mass marketing and market segmentation.
a) Mass marketing: Mass marketing is using a single marketing plan for one product to
reach all consumers, usually a large group. Products that are mass marketed generally have
a universal appeal and few basic feature to differentiate them from competitors.
To mass market a product, businesses select a single general advertising theme that appeals
to most people who use the product. The theme is designed to keep the name of the product
before the general public. The most important thing, for a product to be mass marketed is
that it must have a universal appeal, e.g. products like household cleaners.

b) Market segmentation: Market segmentation is the process by which the market is divided
into distinct subsets with similar needs that lead them to respond similarly to particular
product offerings and marketing programs. In other words, market segmentation is dividing
up a market into several smaller groups with similar needs.

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Market segmentation may also be defined as the process of identifying the clusters or
segments of customers in a market which share similar needs and wants and will respond
in a unique way to a given marketing effort.

How do we segment?
Segmentation decisions are best made in one of the three ways. These ways are also known
as descriptors or criteria. The three are framed in a question form. The questions are, “who
are our customers? Where are our customer? and how do our customers behave?”

To answer these questions, the following descriptors are used.

i) Demographic Descriptors
The term demographic refer to statistics about personal characteristics of a
population. Demographic factors are commonly used by all types of businesses to
segment markets.

Thus, using demographics the consumer market may be divided or segmented in

any of the following ways:
- Age
- Sex
- Income
- Occupation
- Education
- Race and ethnic origin
- Marital status

For industrial markets, the most common demographic factors for dividing or
segmenting the market are through:
- Age
- Sex
- Position
- Size of industry

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 - Industry affiliation

For international markets, the most common demographic factors through which
a market may be segmented are by:
- Countries
- Buying organizations.

ii) Geographic Descriptors

A firm may use geographic factors to segment the market. Here a firm segments
the market according to where the customers are located or live.
One important geographic characteristic is population density. Some retail stores,
for example, will locate only in areas that have a certain minimum number of people
per square kilometer.
Climate is another important geographic characteristic. For example, certain types
of seed crops will only suit a certain climate but not the other. In such a situation,
seed companies will therefore, only market certain seeds that are suitable to a given
climate and region. In general, it is also important to note that different areas vary
in their sales potential, growth rates, cultures, climates, purchase rate, etc. They also
differ in terms of trade areas, distance to the location, etc. All these factors affect
how the market will be segmented geographically.

A firm may also opt to use Geo-demographics segmentation. Under this type of
segmentation, a firm may use both geographic and demographic descriptors to
determine a suitable segment.

iii) Behavioural Descriptors

The market may be segmented through its behavioural aspects. This is based on
what the potential customers do. The patterns of behavior that people follow in their
daily lives, including how they spend their time and money. Segmenting the market
using the behavioural descriptor may be done by focusing on the following:
Consumer needs.
- Benefits sought from a particular product or service.

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 - The importance attached to a product.
- Pre-defined specific features such as superior performance, delivery time, good
service, etc.

Product usage and purchase influence

- Rate and the way the product is used.
- Purchase influence. Who makes the purchase decision?
- Loyalty. As reflected by the number of successive purchases made
over time.
Life Style
This is when a market is segmented on the basis of the consumers’ activities,
interests and opinions. This may include using segmentation services that
focuses on the following aspects:

- Principled-oriented consumers who are motivated by abstract and idealized

criteria.
- Status oriented consumers who buy products that demonstrate personal success.
- Action oriented consumers who are guided by their need for social and physical
activity, variety and risk taking.

Resources
- Psychological, physical, demographic, education, money, past experience,
health, confidence, etc. All those factors that consumers draws on to make
purchase decisions.
- Social class similarity in income, education and occupation.

8.6 TARGETING
Targeting is the act of choosing or selecting the market segment that a firm should enter and start
doing business. A firm will only choose those segments that it believes are right for its business.
Furthermore, target segments should be selected on the firm’s ability to match or exceed competing
offers, as well as the economic attractiveness of the segment.
Different Targeting Strategies
There are three common strategies that are used in market targeting. These are outlined below:

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a) Niche Market Strategy
Niche marketing is a strategy that involves targeting one or a few segments that consists of
a number of customers who seek specialized benefits from a product. In other words, it is
a market coverage strategy in which a firm goes after a large share of one or a few segments.
The niche approach is especially appealing when the company’s resources are limited.
Instead of going after a small share of a large market, the firm goes after a large share of
one or a few segments or niches.
Through niche-market strategy, the firm achieves a strong market position because of its
greater knowledge of consumer needs in the niche it serves and the special reputation it
acquires. It can market more effectively by fine-tuning its products, prices, and programs
to the needs of carefully defined segments. It can market more efficiently, targeting its
products, channels, and communications programs toward only consumers that it can serve
best and most profitably.
Niching also offers smaller firms an opportunity to focus their limited resources on serving
niches that may be overlooked by larger competitors.
Most firms begin with niche strategy to get a foothold against larger, more resourceful
competitors, then grow into broader competitors. One of the major reasons behind the
niche-market strategy, is to help a firm to avoid direct competition with large firms. This
is so because niches most often attract only one or just a few competitors.
The major drawback of the niche strategy, however, is that the business of a firm that rely
on such a strategy can suffer greatly should larger competitors decide to enter the same
segment with greater resources.

b) Mass-market Strategy
A business can pursue a mass-market strategy in two ways. First it can ignore any segment
differences and design a single product and marketing program that will appeal to the entire
market or to the largest number of consumers. The primary object of this strategy is to
capture sufficient volume in order to enable the firm gain economies of scale and a cost
advantage. Consequently, it is favoured by larger companies or larger business units.
This strategy requires:

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 - substantial resources, as well as production capacity and good mass-marketing
capabilities.
- sustainable investment.

The second approach to the mass-market is known as the differentiated Market approach. It is
a market coverage strategy in which a firm decides to target several market segments and designs
separate offers for each. Thus, under this approach, a firm must design separate products and
marketing strategies for the different segments of a market. The main advantage of this approach
is that it can help generate more sales.
The major drawback of mass-market strategy, however, is that it is costly. There are, for instance,
costs for designing different products, manufacturing, inventory, marketing, etc.
c) Growth-market Strategy
Businesses that pursues a growth market strategy often target one or more fast growth
segments, even though these segments may not be very large. It is a strategy often favoured
by small firms to avoid direct confrontation with larger firms while building volume and
market share.

Growth market strategy usually require strong research and marketing capabilities. One
problem however, is that sustained fast growth often attracts large competitors.

8.6 POSITIONING
The final act in the target marketing process of segmentation is positioning. According to Lovelock
(2004): “Positioning is the process of establishing and maintaining a distinctive place in the market
for an organization and/ or its individual product offerings.”
Positioning may also be defined as “the act of designing the company’s offering and image so that
they occupy a meaningful and distinct competitive position in the target customers; minds”
(Kotler, 1997).
This is an important aspect of the positioning concept. Positioning is about what the buyer thinks
about the product or organization. What matters is how the product is perceived.
Understanding the concept of product positioning is key to developing an effective competitive
posture.

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The following four principles can provide guidance to an enterprise that may want to position itself
in the market segment:
1. An enterprise must establish a position in the minds of its targeted customers.
2. The position should be singular, providing one simple and consistent message.
3. The position must set a company apart from its competitors.
4. An enterprise cannot be all things to all people - it must focus its efforts.

The positioning Process

Positioning a new brand in customers’ minds involves a series of steps, as outlined below:
Step 1: Identify a relative Set of Competitive Brands Serving the Target Market
The focus of the analysis should b e on examining:
a) customers’ perceptions about the types of products they might consider as substitutes
to satisfy the same basic need.
b) how various brands or products appeal to customers.
c) how an enterprise or a business unit is positioned relative to its competitors.

Step 2 : Identify Determinant Attributes

Positioning whether for goods or services, can be based on a variety of attributes. Some common
bases are the following
a) Features are used in physical product positioning. An example of emphasizing features
with consumer goods is the claim by Zambian company known as Gracebridge, that: ‘This
is the most beautiful front cover book design ever made in Zambia.’
b) Benefits, for instance one company’s emphasis on safety, another company’s emphasis on
reliability, etc.
c) Parentage includes who makes it. For instance, a phrase like this: ‘At Chongwe College
of Education, you are not just getting a Diploma but a University of Zambia Diploma.’
d) Manufacturing process is often a firm’s positioning effort. An example is Gracebridge’s
statement about its watches - ‘we know it is perfect, but we take another 1000 hours just to
be sure.’
e) Ingredients, what is it made of.
f) Endorsements by experts such as doctors and other professionals. (‘Discover why
Zambian Medical Doctors prescribe our wheelchairs.’)

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 g) Comparison with competitor’s products is common (Gracebridge’s candles lasts much
longer than those from other candle manufacturers.’)
h) Pro-environment positioning seeks to portray an enterprise as a good citizen. (‘while
government leaders are debating climate, we are actually doing something about it’ –
Timberland).
i) Price/quality can also be used by enterprises to position themselves as lowest price sellers
of some specific products.

Step 3 : Collect Data about Customers’ Perceptions of Brands in the Competitive Set.
Having identified a set of competing brands, the marketer needs to know what attributes are
determinant for the target market and the product category under consideration. He needs to know
how different brands in the competitive set are viewed on these attributes. Typically, this market
knowledge is developed by conducting a research. A survey pf consumers about their perception
is required.
Step 4 : Analyze the current position of the competitive Set
Positioning may be directed at a new brand not yet introduced or at repositioning one that already
exists. Whatever the case, it is important to develop a clear understanding of the positioning of
existing brands in the competitive set. There are two useful tools for doing so. One is the
Positioning Grid, also called perceptual map. The other is the value curve.
The positioning grid provides a visual representation of the positions of various products or brands
in the competitive set.
A value curve, on the other hand, indicates how products within a category compare in terms of
the level – high or low.
Step 5 : Determine Customers’ Most preferred combination of attributes
There are several ways analysts can measure customer preferences and include them in a
positioning analysis. For instance, survey respondents can be asked to think of the ideal brand
within a category – a hypothetical brand possessing the perfect combination of attributes (from the
customer’s view point). An alternative approach is to ask respondents to indicate their degree of
preference for each existing brand.
Another method of assessing customers’ preferences and trade-offs among them is conjoint
analysis. Customers are surveyed and asked their preferences among various real or hypothetical
product configurations, each with attributes that are systematically varied. By analyzing the

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resulting data, the marketer can learn which of the several attributes are more important than the
others. These results can then be used in positioning analysis such as those described here.
Step 6: Consider Fit of Possible Positions with Customer Needs and Segment Attractiveness
An important criterion for defining segments is the difference in the benefits sought by different
customers. Because differences between customers’ ideal points reflect variations in benefits they
seek, a market positioning analysis can simultaneously identify distinct market segments as well
as the perceived positions of different brands.
Step 6 can also help uncover locations where additional new brands could be positioned to serve
customer needs not well served by current competitors. Thus a side benefit of the positioning
process is recognition of underserved positions where additional products might be placed.
Step 7: write positioning statement or value proportion to guide development and
implementation of marketing strategy.
The final decision on both the market targeting analysis discussed earlier and the results of a brand
positioning analysis. The position chosen should match the preferences of a particular market
segment and should take into account the current positions of competing brands.
It should also reflect the current and future attractiveness of the target market (its size, expected
growth, and environmental constraints) and the relative strength and weaknesses pf competitors.
Such information, together with an analysis of costs required to maintain the position allows an
assessment of the economic implications of different market positioning strategies.
Most successful products are positioned based on one or, at most, two determinant attributes,
whether physical or perceptual. Using more attributes simply confuses customers.

Writing a Positioning Statement or a Value Proposition

A positioning statement is a succinct statement that identifies the target market for which the
product is intended and the product category in which it competes and states the unique benefit the
product offers. Given below is an example of a positioning Statement that reflects Volvo’s
marketing strategy in the USA:
Volvo’s Position statement
For upscale American families, Volvo is the automobile that offers the utmost in safety.
Value Proposition

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A value proposition is similarly explicit about what the product does for the customer (and
sometimes, what it does not do) and typically also includes information about pricing relative to
competitors.
Both positioning statements and value propositions should generally reflect a unique selling
proposition that the product embodies. In this sense, they reflect the basis on which the marketer
intends to win competitive advantage by differentiating the product from others.
A Value proposition typically looks like this:
- Target market.
- Benefits offered (and not offered).
- Price range (relative to competitors).

It is important that the positioning statement or value proposition states the benefits that the user
of the product will obtain, rather than features or attributes of the product itself or vague or
ambiguous platitudes about high quality or excellent service. By benefits, we mean the resulting
end-use measurable consequences that the user will experience through the use of the product, in
comparison to others.
The marketer generally writes positioning statement for use internally and by others such as
advertising agencies, engaged to develop the marketing strategy. They are short and succinct, and
are not written in catchy consumer language.
Thus, in a very real sense, the positioning statement or value proposition constitutes the foundation
upon which the marketing strategy is built.

Physical positioning
One way to assess the current position of a brand relative to its competitors is on the basis of how
various brands compare on some set of physical characteristics.
Physical positioning is the kind positioning that focuses on establishing and maintaining a
distinctive place in the market by providing products that have unique physical characteristics that
can have a positive and lasting impact on the customer.
Physical product positioning analysis can provide useful information to a marketing manager. It
can thus, provide the basis for coming up with new product lines, and for identifying and designing
new products.
- Physical positioning is important because it can:

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 - Be an essential step in understanding a position analysis, which sets the foundation for
brand positioning decisions.
- Help define the structure of competition by revealing the degree to which various brands
compete.
- Reveal opportunities for new product entries.
- Contributes to better marketing and research and development interface by determining the
key physical product characteristics.
- Indicate the presence of meaningful product gaps.

The major drawback of physical positioning, however, is that a simple comparison of only the
physical dimensions of a product does not provide a complete picture of relative positions
because, positioning ultimately occurs in the customers’ minds.
Even though a brand’s physical characteristics, package, brand name, price, and auxiliary
services can be designed to achieve a particular position in the market, customers may attach
less importance to some of these characteristics, or perceive them differently from what the
firm expects.
Also, the customers’ attitudes towards a brand are often based on social, or psychological
attributes not amenable to objective comparison, such as perceptions of the brand’s aesthetic
appeal, sportiness, or status image.

Perceptual Positioning
As opposed to physical positioning, which focuses on physical characteristics, perceptual
positioning on the other hand focuses on capturing the customer’s perceptions regarding the non-
physical attributes of the product. Perceptual positioning is very important.
Many customers do not want to be bothered about a product’s physical characteristics because
they are not buying these physical properties but rather the benefits they provide. A consumer can
evaluate a product better on the basis of what it does than what it is.
The evaluation of many goods and services is subjective because it is influenced by factors other
than physical properties, including the way products are presented, our past experiences with them,
and opinions of others.

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8.7 THE MARKETING MIX
Once a company has identified a target market and learned about its characteristics, the next step
is to develop a marketing plan. This includes decisions regarding the marketing mix. The
marketing mix is a combination of decisions about product, place, price, and promotion - the
four Ps of marketing used to reach a target market and make a profit. The most important aspect
of marketing mix is a company’s ability to direct all four Ps of marketing to one select target
market.
Product
The Product element focuses on product planning which involves finding out which goods and
services consumers need and want. The products are then selected and designed, or the services
chosen, that will meet the needs and wants. In other words, it involves identifying what products
to make, when to make it, its level of quality, how many to produce and sell, its packaging, brand
name, and warranties or guarantees.
Place
The Place element is concerned with getting the right goods and services in the right place for the
right customers so that they can buy. It focuses on how the products are to be distributed.
Price
The Price element is concerned with setting prices accurately. It is a very important element in the
marketing mix in the sense that if prices are too high, customers won’t buy. And if the prices are
too low the firm’s possibility of making profit will decrease. Therefore, producers must know what
price people in their target market are able and willing to pay. Other factors that affect price
decisions are the quality of the items, the pricing strategy of competitors, and the billing methods
and terms of payments appropriate for the target market. Different pricing strategies are used,
depending on the target market and the competition.
Promotion
The Promotion element in the marketing mix focuses on advertising, promotion, personal selling,
and public relations. Decisions includes all decisions on educating potential customers about the
product and how to develop a good public image with promotional activities. Which media,
newspaper, radio, television or magazine, for example, are best for reaching a target market.

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8.7.1 PLACE
Marketers need to ask themselves, ‘How and where will my target market buy my products?’ This
is the Place decision (one of the four Ps mentioned above). To make a Place Decision, marketers
must decide on their channel of distribution. Distribution is the key link between a business and
its customers.
A). Channels of distribution
A channel of distribution is the path a product takes from the producer or manufacturer to the final
user.
A channel of distribution always begins with the producer or manufacturer and ends with the final
user of that product.
B). Consumer channels
There are mainly four major alternative consumer channels. Each one is described briefly below:
a) Producer direct to consumer
This involves direct selling of products by the producer to the consumer. This eliminates a
layer of intermediaries from a distribution channel. This elimination of intermediaries is
known as dis intermediation.

Why a firm may want to use direct distribution

Many firms prefer to distribute direct to the final customer or consumer for the following reasons:
One reason is that they want complete control over the marketing job. They may think that they
can serve target customers at a lower cost or do the work more effectively than middle men.
Further, working with independent middlemen with different objectives can be troublesome.
Direct Contact with customers: if a firm is in direct contact with its customers, it is more aware
of changes in customer attitudes. It is in a better position to adjust its marketing mix quickly. If a
product needs aggressive selling effort or special technical service, the marketing manager can
ensure that the salesforce receives the necessary training and motivation. In contrast, middlemen
often carry products of several competing producers. So they may not be willing to give any one
item special emphasis its producer wants.
No suitable middlemen. A firm may have to go direct if suitable middlemen are not available.
Proximity: If the services are produced in the presence of customers, there may be little need for
middlemen.

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 b) Producer to retailer to consumer
This is a situation where the producer distributes or sales to the retailer only. The growth
in the retailer size has meant that it becomes economic for producers to supply retailers
direct rather than through wholesalers. Consumers have a convenience of viewing and
testing the product at a retail outlet.

c) Producer to wholesaler to retailer to consumer

This channel means that the producer has to distribute his goods to the wholesaler, who in
turn sales to the retailer. The retailer finally avails the goods to the consumers. Longer
channels like this tend to occur where retail oligopoly do not dominate the distribution
system.

d) Producer to agent to wholesaler to retailer to consumer

This long channel is sometimes used by companies entering the foreign markets. They may
delegate the task of selling the product to an agent. Then the agent contact wholesalers or
retailers and receives commission on sales.

C). Business to business channels

Outlined below are the common business-to-business channels.
i. Producer to Business customer
Supplying business customers direct is common for expensive industrial products.
There needs to be close liaison between supply and customer to solve technical
problems, and the size of the order makes direct selling and distribution economic.

ii. Producer to agent to business customer

A producer may choose to employ the services of an agent who may sell a range of
goods from several suppliers. This spreads selling costs and may be attractive to
companies without the reserves to set up their own sales operations. The disadvantage
is that there is little control over the agent who is unlikely to devote the same amount
of time selling the products compared with the dedicated sales team.

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 iii. Producer to distributer to business customer
For less expensive, more frequently bought business-to-business products, distributers
are used. These may have both internal and field force staff. Internal staff deal with
customer-generated enquiries and order placing, order follow-up, and checking
inventory levels. Field staff are responsible for finding new customers, gather market
information, distribute catalogues, etc. The advantage to customers of using distributers
is that they can buy small quantities locally.

iv. Producer to agent to distributor to business customer

Where business customers prefer to call upon distributors, the agent’s job will require
selling into these intermediaries. The reason why a producer may employ an agent is
to reduce costs.
D). Physical distribution
Physical distribution is the link between a business and its customers because it delivers
the right product at the right time to the right place.
Physical distribution is the process of transporting, storing and handling goods on the way
from seller to customer.
In our discussion of the physical distribution, our focus will be on the transportation
function.
Goods are moved by five major transportation forms. These are motor carriers, railroads,
waterways, pipelines, and air carriers.
a) Motor Carriers
Motor carriers are primarily used for light-weight goods over moderate distances.
They handle nearly 80 per cent of the lightweight goods.

b) Railroads
Railroads are one of the major types of transportation. Trains are important for
moving heavy and bulky freight, such as coal, steel, copper cathodes, grain, farm
equipment, etc., over long distances. In some countries, trains also transport
automobiles.

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 c) Waterways
Shipment by waterway is one of the oldest methods of moving merchandise. In some
countries, transportation by water is particularly important for international product
shipments, especially oil, ore, and grain. One major advantage of waterway
transportation is low cost. Ships and barges are the cheapest form of freight
transportation.

d) Pipe-lines
Pipelines are most frequently used to transport oil and natural gas. For example, they
move crude oil from oilfields to the refinery where it is processed. The refined
products, such as gasoline, are then moved by motor carrier to retail outlets.

e) Air carriers
Shipment by air carrier is the most expensive form of distribution. High-value, low-
weight items, such as electronics and computer equipment, are often shipped by air.
Certain perishable products, such as fresh cut flowers, and medicines are also often
shipped by air.

8.7.2 PRICING
Price is the value of money (or its equivalent) placed on a good or service. It is usually expressed
in monetary terms. It may also be expressed in non-monetary terms, such as free goods or services
in exchange for the purchase of an item.
The seller’s objective is to set a price high enough for the firm to make a profit, and yet not so high
that it exceeds the value potential customer place on the product.

Basic Pricing Strategies

A major factor in determining the profitability of any product is price. You need to find the
right price for your target market. Only then will you have a chance of being successful.
There are several basic strategies that you may want to consider in determining the price for your
products. These are discussed below.

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a) Cost-oriented pricing
In cost oriented pricing, marketers first calculate the costs of acquiring, or making
a product and other expenses of doing business. Then they add their projected profit
margin to these figures to arrive at a price. Markup Pricing and cost-Plus Pricing
are two of the most common methods of cost oriented pricing.

Markup-Pricing : markup-Pricing is used primarily by wholesalers and retailers

who are involved in acquiring goods for resale. A markup is the difference between
the price of an item and its cost. It is generally expressed as a percentage. If a
business is to be successful, the markup on its products must be high enough to
cover the expenses of running the business and must include the intended profit.

Cost-Plus Pricing : In cost plus pricing, all costs and expenses are calculated and
then the desired profit is added to arrive at a price. Cost plus-pricing is used
primarily by manufacturers and service companies.

b) Demand-oriented pricing
Marketers who use demand-oriented pricing attempt to determine what present
consumers are willing to pay for given goods and services. The key to using this
method of pricing is the consumer’s perceived value of the item. The price set must
be in line with this perception. If it is not, or if the perceived value itself is misread,
the item will be priced too high or too low for the target market, either of which
could cause the product to fail.

c) Competition-oriented pricing
Marketers who study their competitors to determine the prices of their products are
using competition-oriented pricing. These marketers may elect to take one of the
three actions after learning their competitors’ prices. Thus they may opt to price
their products as follows: a) price above the competition, b) price below the
competition, or c) price in line with the competition.

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What is different about this method of pricing is that there is no relationship between cost and
price or between demand and price. Marketers simply set prices on the basis of what their
competitors charge.
Two basic types of competitor-oriented pricing strategies are competitive-bid pricing and going-
rate pricing.
Competitive Bid Pricing : Determining the price for a product on the basis of bids submitted by
competitors to a company or government agency is called competitive bid pricing. Most
government agencies are required by law to request bids on certain specifications so they can select
the company that offers the lowest price on the desired product.
Going-Rate Pricing : Almost all firms engage in this type of pricing. It involves studying the
competitors’ prices to make sure that one’s own prices are in line. Going rate pricing is especially
important in businesses where the competing products are similar. The firm with the leading
market share may be the leader in setting prices. Other companies may chose to price their products
above that of the market leader, below or in line with the market leader.

D). Pricing strategies for new product

One of the two pricing methods discussed below may be used when a new product is introduced.

i. Skimming Pricing
This is a pricing policy that sets a very high price for a new product to capitalize
on the high demand for it during its introductory period. At this time, the high
price is geared toward trendsetters, who are generally willing to pay higher
prices in order to be the first to own or avail themselves of a new product.
ii. Penetration Pricing
This is the kind of pricingin which the initial price of a new product is set very
low. The purpose of penetration pricing is to encourage as many people as
possible to buy the product and thus penetrate the market.

E). Psychological pricing strategies

Psychological Pricing refers to techniques that create an illusion for customers or that make
shopping easier for them. In either case, psychological pricing techniques appeal to particular

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 market segments because of their shared perceptions and buying habits. The following are the
common psychological pricing techniques:
i. Odd-even pricing
This is a technique that involves setting prices that all end in either odd or even numbers. The
psychological principle is that odd numbers such K79, K7: 95, K59: 99, etc., present a bargain
image. Even numbers such as K10, K20, K100, present a quality image. You will find that
many marketers follow the odd-even technique in an effort to project a certain image.

ii. Prestige pricing

Under this technique, the practice is to set higher-than-average prices. The reason behind this
kind of pricing practice is to show status and prestige to the consumer. Also many customers
tend to think that higher prices mean higher quality. Thus they are willing to pay more for
certain goods and services.

However, it is important to note that even customers who are known to prefer higher priced
products have limits on what they will spend for prestige goods and services. To avoid
exceeding these limits, marketers must set ceiling prices very carefully.

iii. Promotional pricing

The psychological technique of promotional pricing is generally used in conjunction with
sales promotion when prices are lower than average. Two basic types of promotional pricing
is loss leader pricing, and special event pricing. Loss leader pricing is used to attract customers
by offering, very popular items of merchandise, for sale at cost price or slightly above the cost
price. Customers who are familiar with the prices of these items will be attracted by the
bargain and will come to the store to shop. Marketers hope that while customers are in the
store they will also buy other items at the customary markup and will return on subsequent
occasions.
In special-event pricing, items are reduced in price for a short period of time. At the end of a
season, businesses also run clearance sales to get rid of old merchandise in order to make
room for the new.

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iv. Price lining
This is a special pricing technique that requires a store to offer all merchandise in a given
category at certain prices. For example, a store might price all of its blouses at K25, K35, and
K50.

When deciding on price lines, a marketer must be careful to make the price differences great
enough to represent low, middle, and high prices for the category.

An advantage of price lining is that the target market is fully aware of the price range of
products in a given store, and this helps the store maintain its image. It also helps customers
compare items, both within a single line and between the various lines.

F). Discount pricing

Discount pricing involves the seller’s offering reductions from the usual price. These
discounts include cash, quantity, promotional discounts, etc.

i. Cash Discounts
Cash discounts are offered to buyers to encourage them to pay their bills. For example 2
per cent discount is granted if the bill is paid in 10 days. If the buyer does not take
advantage of the discount, the full amount must be paid within 30 days for instance.

ii. Quantity Discounts

Quantity discounts are offered to buyers for placing large orders. Quantity discounts
encourage buyers to buy to purchase more than they originally intended.

iii. Promotional Discounts

Promotional discounts are offered to wholesalers and retailers who are willing to advertise or
promote a manufacturer’s products. The discount may take the form of a percentage reduction
in price or free merchandise.

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8.7.3 PROMOTION
The role of promotion
Promotion is any form of communication a business or organization uses to inform, persuade, or
remind people about its products and improve its public image. Typically, a business uses
promotion to convince potential customers to buy from it instead of from a competitor.
Types of promotion
There are four basic types of promotion as indicated below:
a) Advertising
Advertising is a non-personal presentation and promotion of ideas, goods, and
services by an identified sponsor. Advertising is distinguished from other forms of
promotion by three features. The following are the three features:
1. The time or space devoted to it is paid for
2. It uses the set format to carry the message rather than personal one-on-one
selling.
3. It identifies the sponsor of the message.

Businesses spend so much on advertising because it offers the following six

advantages:
1. A large number of people usually see the advert’s message.
2. Advertising costs per potential customer are usually low.
3. Businesses can choose the most appropriate media to reach their target
market.
4. A business can control the content of an advertisement and adapt it to the
medium and method of presentation.
5. Advertisements integrated into television shows, magazines, or newspapers
are subject to repeat viewing. This fixes the advertiser’s message in
people’s minds.
6. Advertisements can presell products. In other words, they can influence
people to make up their minds about a purchase before they shop.

Disadvantages of Advertising

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 1. Advertising cannot focus on individual needs because the message is
the same for all.
2. Some forms of advertising such as television can be expensive for many
businesses.
3. Advertising may be wasteful and inefficient in certain instances, For
instance a newspaper advert may be seen by only a few people who
read newspapers, television adverts by only a few viewers of specific
shows.
4. Because of the cost and the need to attract and hold the attention of
potential customers, advertisements must be brief. Other a result most
adverts are too brief to inform in depth. Thus in comparison, the other
forms of promotion, especially personal sales presentation are far more
complete.

b) Publicity and public Relations

Publicity involves creating demand for a business or product by placing news about
it in publications, radio, television, or stage. A business can use publicity to promote
particular products.
The principal function of publicity however is building an image. Image is the way a business
organization is defined in people’s minds. It is an impression based on a combination of factors
including physical surroundings, personal experiences, and things written or said in the media.
The right kind of publicity can create a positive image for a company and maintain or improve that
image within the community.
The basic difference between advertising and publicity is that publicity is not paid for by the
business. It is free. For this reason, publicity is an excellent way to spread information about a
company and its products.

The disadvantage of publicity is that not all publicity is positive for a business. This is because
bad stories are likely to get publicized too. Negative stories can hurt the company’s image.

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Public Relations : To avoid such problems or to repair the damage when it occurs, larger
companies have put in place public relations departments. People in these departments write news
releases and plan events designed to present a favourable image of the company.
Not only large companies but also well-run businesses do not leave things to chance. They work
hard to create a favourable image. They engage in public relations.
Public relations refer to any activity designed to create goodwill toward a business.
The types of activities that qualify as public relations and the audiences to which they are targeted
are many and varied. Businesses are concerned with their employees, customers and the general
public.
Employees: To customers, employees are the company. Successful businesses have loyal and
well-motivated employees. The public relations staff work with management to design programs
that foster such attitudes. These programs include:
i). job training.
ii). Newsletters for and about the company and its employees.
iii). Open communication between management and employees.
iv). Promote from within.
v). Awards for employees for improvement in performance and efficiency.

Customer Relations: Good communication between employees and customers is vital in

promoting a favourable business image. Many retail firms also offer special services and amenities
in order to maintain good customer relations.

Other public relations efforts include customer advisory boards. These are panels of consumers
who make suggestions on new products and services. Customer advisory boards are used by
manufacturers and retailers alike to test new products or services.

Other firms employee consumer affairs specialsts to handle consumer complaints and to serve as
consumer advocates within the firm. Many businesses also sponsor special events to foster positive
customer relations.

Community Relations

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Community relations refers to the activities that a business uses to acquire or maintain the respect
of the community. Business fosters good community relations by participating in and sponsoring
activities that benefit the civic, cultural and social life of a community. Businesses need to be
active members of their communities. This helps to create a goodwill for their business
participants.

c).Sales promotion
This is the use of marketing devices such as displays, premiums, and contests, to stimulate
purchases. It includes such special events as fashion shows and vendor demonstrations. It does not
include personal or face-to-face selling, advertising, or publicity. The objectives of sales promotion
is to increase customer traffic (and thus sales), to inform customers about new products and
policies, and to create a positive store image.
Displays: window, floor, and counter displays are all forms of visual merchandising. By exposing
potential customers firsthand to a company’s products, displays stimulate sales and serve as in-
store advertisements.
Product samples: one form of sales promotion is the product sample. A product sample is a free
trial size of a product that is sent through the mail, distributed door-to-door, or through retail stores
and trade shows. Detergents, toothpastes, shampoos, etc., are frequently promoted this way.
Samples are especially important in promoting new products. Drug manufacturers frequently give
samples to doctors to try with their patients. Teachers sometimes receive sample textbooks to
encourage them to buy classroom set.
Contests and Rebates: Many products are promoted through contests and rebates. These are used
by businesses to create excitement and interest and thereby generate sales.
Contests are games and activities that require the participant to demonstrate a skill. This can
include writing a short story or an essay about a product, naming a product, or creating a new
advertising slogan. Contest winners are awarded such prizes as all-expense paid trips and money.
Contests helps promote store traffic and maintain product loyalty. As a result, buying often
increases.
Rebates are discounts offered by manufacturers for purchasing an item during a given time period.
Firms may use rebates to encourage customers to buy their products.
Premiums: The most popular and frequently used sales promotion devices at consumer level are
premiums. Premiums are prizes or rewards offered to a customer as an added inducement to make
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a purchase. They are designed to increases sales by building product loyalty, attracting new
customers, and increasing store traffic.
d).Personal selling
Advertising, publicity, and sales promotion are forms of non-personal selling. Non personal selling
involves communicating with customers in ways other than through direct contact. The remaining
way for a business to communicate with its customers is through personal selling.
Personal selling involves making an oral sales presentation to one or more potential buyers. It is
the principal responsibility of sales personnel.
There are two types of sales personnel. These are order-taking personnel, and order-getting
personnel.
Order-taking personnel, such as cashiers, counter clerks, and sales associates, perform routine
tasks. At the retail level, they set up displays, stock shelves, answer customer inquiries, and operate
cash registers.
Order-getting personnel, such as professional sales people, are more involved in informing
customers and helping them to buy. Generally, order-getting sales personnel sell items. They
usually receive more intensive training than their order-taking counterparts.
Personal selling is designed to complete a sale once a customer is attracted to a business by
advertising, publicity, or sales promotion.
If the sales presentation is done well, personal selling improves customer satisfaction. This is
because the salesperson can use information gained from the personal contact to address the
customer’s unique concerns and problems.
The advantage of personal selling is that it is the most flexible and individualized of the promotion
devices available to business.
The disadvantages of personal selling are as follows :

1. A salesperson can help only one person at a time. This means that to reach
many customers, a larger sales staff is needed. This will mean more expenses
to meet the requirements of a larger staff.

2. A business that relies on personal selling must make sure that their
employees completely understand the selling process to ensure continued

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 sales and goodwill. This may mean additional training. As a result, the cost
of personal selling is likely to be higher.

The Concept of Promotional Mix

After a business establishes a promotional budget, it must determine its promotional mix.
Promotional mix is the combination of different types of promotion a business uses to persuade
customers to buy its products.
Many businesses use more than one type of promotion. Each of the promotion is designed to
complement the other. All types of promotion must be coordinated.

8.7.4 PRODUCT
Your decisions about your product are extremely important to your marketing. This is so because
they will help you to achieve two things :
- Satisfy the requirements of your target market.
- Meet your enterprise’s business objectives.

THE PRODUCT CONCEPT

A product is any item or service that satisfies the need of a consumer. A product can be a physical
product such as leather belts. It can be a service such as a hair cutting salon. It can also be a mix
of physical goods and services, such as a hardware store and free advice on building.

TYPES OF PRODUCTS
An enterprise needs to decide what type of product it is offering to the target market.
There are three major types of products :

A). CONSUMER PRODUCTS

Consumer products are products bought by an individual person for his or her own use. There are
three major types of consumer products , namely convenience, shopping, and specialty products.

- Convenience products

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 Convenience products are products that are purchased frequently. The customers do not
take long to think about buying convenience products. Examples are soap, tooth paste,
coffee, sweets, magazines, etc. the important aspect of these consumer products is that the
product must be in stock and easily available to customers.

- Shopping products
Shopping products are products for which customers actually shop around before buying.
They compare all the alternatives in terms of price, quality, design, etc. Examples of
shopping products are clothing, furniture, and household items such as vacuum cleaners,
kettles, toasters, etc. An important aspect of this type of consumer product is that the
customers need to know what makes your product different from that of the competitor.

- Specialty products
Specialty products that the customer makes a special effort to obtain. Examples of specialty
products are exclusive designer clothing, photographic equipment, innovative hi-fi
equipment, etc. These products are usually only available at selected outlets. An important
aspect of this type of consumer product is that it requires that the customer know what
makes the product or the place selling the product or the place selling the product so special.

B). INDUSTRIAL OR BUSINESS PRODUCTS

Industrial or business products are bought by a business for use in making other
products or providing other services. There are several types of industrial products as
indicated below:

- Capital Equipment
Capital equipment is essentially equipment and machinery used for, or helping to produce,
other products or services. Examples are office equipment, sewing machines, and
agricultural machines. These products tend to be fairly expensive and last a long time. The

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 usually require fairly high levels of technical knowledge and service maintenance that
extends past the time of purchase of the product.

- Materials and Components

Materials and components are products actually used in, or used up in, the making or
delivery of the final product. This might be raw materials e.g. potatoes in a fast food outlet
serving chips) or processed materials (e.g. chemicals used to make paint. Materials whether
raw or processed usually become part of the product. In other words, they change their
form. Components also become part of the product but they don’t change their form.
Examples of components are spark plugs, buttons, nuts and bolts, etc.

- Operating Supplies
Operating supplies are products which are used by a business, but not in the manufacturing
of products themselves. Examples are oil, cleaning materials, paperclips and note pads.
They are relatively inexpensive and have a fairly short life span. The important aspects of
this type of product are that it must be available to those who want it and it must be
comparatively priced.

- Industrial Services
Industrial services are those used by a business to support the production process.
Examples are office cleaning, catering, waste removal, market research and auditing
services. The important aspect of this type of product or service is that the customers need
to be made aware of how the service you offer can help them to perform their tasks better
and reach their objectives.

8.8 BRANDING
A firm should also focus on developing the required branding for its products. A brand is a name,
design, or symbol that identifies the products of a company. Branding identifies and helps to

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differentiate the goods or services of one seller from those of another. It consists of a name, sign,
symbol, or some combination thereof.
Brands consist of two types of attributes. These are:
a) Intrinsic attributes: These are the functional characteristics of a product. If a firm decides
to alter the intrinsic attributes the effect will be that the product itself will be altered too.

b) Extrinsic attributes: These are attributes such as the brand name, marketing
communication strategy used, etc. Altering these will not alter the product.

Benefits of Branding
Brands develop personalities and encapsulates the core values of a product.
For the customer, branding is important because:
a) It makes it easier for the customer to identify the products.
b) It provides continuity and consistency.
c) It reduces risk.
d) It helps gauge product quality.
e) It provides psychological rewards (e.g. it satisfies certain status needs).
f) It provides cues about the nature of source of the product and its vales.

For the manufacturer, branding:

a) Helps to differentiate the product.
b) Make purchase decision easier.
c) Enables premium pricing.
d) Promotes loyalty. Some customers will always be loyal to
the product and buy it all the time.
e) Enables integrated marketing communications.
f) Helps corporate identity,
g) Provides legal protection for the product

The Strategic role of branding

Branding is strategically important because it can be used to:
a) Defend the market share.

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 b) Group brands.
c) Protect established positions.
d) Attack competing brands.
e) Deter market entry by other brands.
f) Help a firm to achieve customer retention.

Branding Strategies
There are several branding strategies that a firm may choose from. The following are the strategies:
a) Individual Brands: In this type of branding the firm provides a brand name for each
product. Thus, the product is known by its name instead of the name of the company
making the product.
The advantage of individual branding is that it reduces the risk should one product fail.
This is so because the risk of one product failing will not affect the other products. Thus,
such a risk will be confined only to that one product. The other advantage is that it
promotes competition in multiple entries within the same product class.

b) Family Brands: in this type of branding, a firm uses one brand name to cover a group of
its products. The advantages of this kind of branding are:
i). It facilitates the promotion of product line items.
ii). It is less costly compared to individual branding.

However, its main disadvantage is that it may prove ineffective if it covers both high
quality products and low quality products. The inclusion of low quality products may
destroy the family brand.

c) Co-Branding: this strategy involves putting two brands

together to form a new brand.

d) Global Brands: these are brands that have a wider scale of coverage. Taking on many
countries. Thus the brand of the manufacturer is sold globally in many different countries
and continents world-wide.

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 The advantage of this kind of branding is that it dramatically improves sales and profit.
However its main drawbacks are:
i). it requires heavy investment.
Ii). It may attract negative association of the name in some countries.

e) National Brands: These are brands of the manufacturer that are sold nationally. Like
global brands, the advantages of these brands are that they are likely to increase sales and
generate profits. However, they also need heavy investment.
National brands (also called manufacturer brands) are nationally recognized. Some national
brands are so popular that they help attract customers to a business. National brands
generate the majority of sales for most product categories.
National brands not only identify a product but also indicate a standard quality and price.
They appeal to customers who want consistent quality, dependable product performance,
status, and who will not take risks with unknown goods and services

f) Store Brands (Private Brands): In case of private brands or store brands, products are
sold under a brand name created by the retailer. In recent years, high quality store brands
have gained considerable ground versus national brands. The main advantage of this type
of a brand from the customer’s side is that its products are relatively cheaper compared to
other brands.

Private brands appeal to customers who want quality and good performance but at a lower
price. Many large stores and retail chains have private brands.

Private brands are popular because they are more profitable. They are better controlled by retailers
because they cannot be sold by competitors and thus can lead to retailer ( rather than to
manufacturer) loyalty.
Unbranded Merchandise
Some customers are unwilling to pay the higher prices of branded products. These customers often
purchase generic products (products that carry no brand name). They are often sold in

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supermarkets and discount stores. Such products are often priced lower than branded goods. They
cost less because they are not heavily advertised.
Product planners must know their markets and customers well. By understanding buyer
preferences for certain products, a business can provide a proper balance of products for its target
market.

8.9 NEW PRODUCT DEVELOPMENT

New product development is one of the key methods that a business can use to try to ensure that it
has a future. There are basically three types of new products. These are as follows:
a) Major innovations: Major innovations are totally new products involving new
combinations of technology, new formulations or new user benefits. This type of totally
new product is fairly rare and involves quite a large element of risk for a business.

b) Product improvements: Product improvements involve improving the existing product

either slightly or substantially. This could take the form of product redesign, formula or
ingredient changes.

c) Product additions: Product additions are simply products that are imitations of existing
products, or line extensions of products that a business person is are ready marketing
successfully.

New Product Development Process

The way to develop a new product will vary from business to business, but in general there are
several steps that should be followed. These are as follows:
a) Idea Generation

The first step is to generate ideas for possible new products. Obtaining ideas for new products
must be an ongoing activity for all businesses. Product ideas can come from sources inside the
company and outside the company.
The following internal sources can be useful in this aspect: your own research, your own
manufacturing process, market research, salespeople, customer service activities, managers in
business, employee suggestions, etc.

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On the other hand, the following external sources can also prove to be useful sources of
generating ideas: Competitors’ products, Customer feedback, Customer complaints, Customer
suggestions, Outside specialists, Suppliers’ suggestions, etc.

b) Screening

Once you have generated ideas, screen or filter the ideas to see which ones are really offering
business prospects for you. You will need to rate and rank the ideas to determine the
attractiveness of the market for the proposed product, the fit between product and company
objectives, and the capability of the company to produce and market the product. Opportunities
with better growth potential are likely to be more attractive.

c) Business Analysis

At this stage, you will need to do some research as to what the product should look like, how
customers will use the product, and what it will do for the customers. You will also need to
determine how big the market for the product is, who the customers will be, what possible
prices and profit margins are, and who the competitors will be. You will also need to do some
financial planning in terms of cash flows, costs and profit projections.

d) Product Development

At this stage, the new product concept is developed into a physical product. You do this by
developing a sample product (actual model). The important task here is to ensure that the
sample product is developed according to customer needs. To achieve this, there will be need
to both carry out some research as well as to bring the customers on board.
You bring customers on board by conducting a product testing. Product testing focuses on the
functional aspects of the product and on consumer acceptance. Functional tests are carried out
to check on such aspects as safety, performance and shelf life. Thus, consumers may identify
problems and suggest improvements.
Experts can also be used in product development. Thus expert opinion can evaluated to see if
it ca be of help.

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 The more input that potential customers have into the development of the product, the greater
the likelihood of a successful outcome.
e) Market Testing

Once the product is developed, you may want to check everything by testing the product under
market conditions before launching it onto the market. You may choose a small area to use as
a test-market area, offer the product to customers, and implement the marketing mix you intend
to follow. You will then evaluate and fine tune the marketing mix and see how the customers
react to the product and the marketing mix.

f) Launching the New Product (commercialization)

At this stage you launch the product fully on to the market in the hope of winning competitive
advantage. You may want to introduce the product onto separate areas of the market so as to
be able to handle the product introduction and marketing, and the orders and demand for the
product. You will also have to ensure that you monitor customers’ reactions to the new product
so as to make sure everything goes smoothly.

UNIT 9

9.0 MARKETING RESEARCH AND SALESMANSHIP

OBJECTIVES
By the end of this unit, you should be able to:

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 • Define marketing research.
• Conduct a simple marketing research.
• Explain the selling process.

9.1 What is marketing Research?

Marketing research is the process of getting the marketing information needed to make sound
business decisions. It involves the systematic gathering, recording, and analyzing of data about
problems related to the marketing of goods and services.
The primary emphasis of most marketing research, is to obtain information about the preferences,
opinions, habits, trends, and plans of potential customers.
9.2 Conducting Marketing Research Process
Five major steps are involved in the marketing research process. Each step must be performed
sequentially and systematically to arrive at a solution to a problem. The following are the steps in
the marketing research process:
Step 1: Problem Definition
Defining the problem is one of the most important steps in marketing research. Problem definition
occurs when you have identified the problem that your proposed program of research intends to
address. A marketing researcher should clearly state the problem.
Step 2: Design the Research
i). State whether you will follow a qualitative or quantitative research methodology.
ii). Determine the data collection Method: This may be either through any of the following
methods:
• Observation method.
• Survey method.
• Experimental method.

iii).Determine the contact methods: This may be done through any of the following or a
combination of them:
• Face to face contact or interviews.

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 • Telephone.
• Mail, or email.

iv).Design the sampling plan

• From which population will the sample of respondents be drawn from?
• What will be the sample size?
• What will be the method of sampling?

Step 3: Obtaining Data

During the second step in the marketing research process, data are obtained and examined about
the problem and problems being studied. The word data means facts.
There are two types of data used in marketing research. These are primary data and secondary
data.
Primary data are raw facts and figures obtained for the first time and used specifically for the
particular problem under study.
Secondary data are facts that have already been collected, and are used for some other purpose
than the current study.
Primary data are obtained using the following methods:
i).The survey method : This is a research technique in which information is gathered from people
directly through the use of questionnaires. This is a written list of questions pertinent to the
identified problem.
The survey method is the most frequently used method for collecting primary data.
ii).The Observation Method
The observation method is a research technique in which the actions of people are observedand
recorded. This method is frequently used to get information about employee performance or
customer behavior.

The observation technique may either use natural or contrived observations.

With natural observation, customers or employee are observed by the researcher as they would
naturally act in a given situation. For example, the researcher may personally observe the
customers as they shop, enter or leave a store. Sometimes, the researcher may choose to use hidden
cameras to observe the customers or people under study.

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Some observations are contrived (devised). For example, observers pose as customers to measure
the effectiveness of the selling techniques used by sales people. The salespeople are observed with
respect to approach, sales presentation, product knowledge, and suggestion selling.
For the observation technique to be successful, data from the observation must be recorded, actions
must be identified and behaviours noted.

iii). Experimental Methods: this is a research technique in which one or more marketing variables
are observed under controlled conditions.

For example, a business may want to compare the effectiveness of two different advertisements.
To do so, the researcher will select two similar groups of consumers. One group is shown one
advertisement, and another group is shown the other.

The adverts are the variables, while the two groups are the controlled condition.

If one advert gets a better response, the business may choose it for its advertising campaign.

The experimental method of marketing research is least used often. This is because of high costs
of setting up the research situation.

Step 4: Data Analysis

The third step in the marketing research process is data analysis. Data analysis is the compiling,
analyzing and interpreting the results of primary and secondary data collection.

The accurate compiling of data allows marketing researchers to carefully analyze and interpret
data in order to make recommendations to management regarding the problem being studied.

Step 5: Recommending solutions to the Problem

Successful research usually results in the development of several alternatives or recommendations

for solving a problem. Recommendations must be well written and well organized so that the
appropriate business managers will understand them. This means the recommendations must be
clear and well supported by the research data.

A typical research report outline includes:

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 • Title page.
• Acknowledgements to people who assisted in the research effort.
• Table of contents.
• Lists of tables, figures, charts, and graphs.
• Introduction (includes the problem under study, its importance, definitions,
limitations of the study, and basic assumptions).
• Literature review (including the results of any secondary data reviewed for
purposes of the research effort).
• Procedures used (research techniques used to obtain primary data).
• Findings
• Recommendations.
• Summary and conclusions.
• Appendices.
• Bibliography.

Step 6 : Report the Results the Decision Maker

Report your findings in line with the objectives of your research. This is especially easier if at the
beginning your marketing research started with clearly defined objectives.

Step 7 : Implementing the Findings

After a research effort has been completed, the findings of the marketing research should be
implemented.

Once the recommendations have been implemented, a business should carefully monitor the
results. A Business needs to know whether the specific actions taken are successful and to what
extent are they successful.

9.3 SELLING
Selling involves providing customers with the goods and services that they wish to buy.

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THE SALES PROCESS: Salespeople go through the following eight steps in helping a customer
make a purchase.
Step 1: Prospecting: A prospect (also called a lead) is a potential customer. Prospecting is looking
for customers. Successful industrial salespeople are always prospecting using a variety of methods
and sources to suit the products they sell.
Sources and methods of prospecting
a). Employer leads: Employers get leads from their involvement in trade shows and from
advertising in trade journals and consumer magazines.
b).Telephone Directories: Telephone directories provide names, addresses, and telephone
numbers of potential customers in given geographic areas. They also list businesses that may be
potential customers for certain industrial goods and services.
c). Trade and professional directories: Industrial sales representatives can use trade and
professional directories to locate potential customers by type of business.
d). Newspapers: Newspapers provide good leads for some salespeople.
f). Customer referrals: Satisfied customers often give salespeople referrals or names of other
people who may buy the product. This is known as the endless chain method.
g). Cold canvassing: In cold canvassing a salesperson tries to locate potential customers with a
little or no direct help other than that, perhaps, from a telephone directory. This is sometimes called
blind prospecting.
Step 2: Approaching the customer: This step is in two parts known as the pre-approach and the
initial approach.
In the pre-approach, the salesperson is getting ready to sale. He or she should prepare for the sale
by studying his or her products and keeping abreast of industry trends. They should also pay
attention to their personal appearance.
They should prepare the merchandise and the work area. This involves stock-keeping and
housekeeping activities such as arranging displays, taking inventory, replenishing the stock,
adjusting price lists, analyzing past sales records, etc.
The initial approach, on the other hand, is the first face-to face contact with the customer.
To begin conversation, you need to know what interests the customer. You will also need to
establish rapport. To establish rapport, and to create a positive atmosphere for the sale, you will
need to do the following:

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i).Be courteous and respectful.
ii). Establish good eye-contact.
iii). Be enthusiastic.
iv). Show a sincere interest in the customer.
V). Be friendly and genuine.
Vi). Use the customer’s name if known.
Vii). Time the approach appropriately.
There are three methods you can use in the initial approach as outlined below:
a) The service approach method: In this method, the salesperson asks the customer if he or
she needs assistance. This method is acceptable when the customer is in a hurry (approach
such a customer quickly).
b) The greeting approach method: In this approach, the salesperson simply welcomes the
customer to the store. The greeting can be formal or informal. If you know the customer’s
name greet them by their name. Using the customer’s name makes the customer feel
important. This method helps to begin a conversation and also helps to establish a positive
rapport. But it does not focus on the merchandise.

c) The merchandise approach method: In this approach the salesperson makes a comment or
asks questions about a product that the customer is looking at. The only time you can use this
method is when the customer stops to look at a specific item. Then you can open with a
statement about the product’s features and benefits. This method is the most effective initial
approach because it immediately focuses attention on the merchandise.

Step 3: Determining Needs: The following techniques can help a salesperson determine the needs
of the customer:
a). Observing: Observe the customer.
b). Listening: Listening helps you pick up clues to the customer’s needs for use in the product
presentation. Therefore, listen attentively. Maintain good eye contact. Give feedback. Give your
undivided attention. Listen with empathy and open mind. Never interrupt.
c). Questioning: This is an important skill that can help determine the customer’s needs. In any
case remember these simple rules: Do not ask too many questions in a row. Do not ask questions
that may put a customer on the defensive or make the person feel embarrassed.

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Step 4: Presenting the product
Show the product and talk about it. The goal of the product presentation is to match the customer’s
needs with appropriate product features and benefits.
Product presentation usually takes the following steps:
a) Selecting products : Select a few items that match the needs of the customer.

b) Number of product : To avoid overwhelming your customer, show no more than three
products at a time.
c) What to say during the presentation: In this part of the sales process, you talk about the
product’s features and benefits. Use layman’s terms.

d) What to do during the presentation: Display and handle the merchandise effectively.
Demonstrate the product in use, and use dramatic actions and sales aids to point out special
features. Also involve the customer in your presentation.

Displaying and handling the Product: Creatively displaying the product is the first step in an
eye-catching presentation.
The way you handle a product presents an image of its quality. Handle it with respect, and use
hand gestures to show the significance of certain features. Expensive items should be carefully
held.
Demonstrating: To prove selling points or claims made by the manufacturer, you may need to
demonstrate the product.
Sales aids: when it is impractical to demonstrate the actual product, or when you want to
emphasize certain selling points further, you can use sales aids in your sales presentations. Sales
aids include samples, reprints of magazines and newspaper articles, audio-visual aids, models,
photographs, drawings, graphs, charts, customer testimonials, and warranty information.
Involve the customer: when you involve a customer in the sale, you are helping the person make
intelligent buying decisions. For example, you may ask the customer to taste and smell food
products, type on a computer key board, test drive an automobile, etc.
Step 5: Handling questions and objections

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Objections are concerns, hesitations, doubts, or other honest reasons a customer has for not making
a purchase. Objections should be viewed as positive because they give you an opportunity to
present more information to the customer.
Excuses are insincere reasons for not buying or for not seeing the salesperson. When you are faced
with excuses, be polite and courteous. Encourage the customer to look around and ask you any
questions he or she may have.
a). Welcome Objections: You should welcome objections. They can guide you in the sales
process by helping you redefine the customer’s needs and determine when the customer needs
more information. Customers’ questions that are connected to the objections should be answered
promptly.
b). Plan Ahead for Objections: You can be prepared for most objections that may occur in sales
situation by preparing an objection analysis sheet. An objection analysis sheet is a list that
enumerates common objections and possible responses to those objections.
c). Four-step process for handling Objections
i)Listen carefully: To demonstrate sincere concern for your customer’s objections ensure that you
listen carefully. Be attentive, let the customer talk, and you should also maintain an eye contact.
ii).Acknowledge the customer’s objections: Acknowledging the objections demonstrates that
you understand and care about the customer’s concerns. In acknowledging a customer’s concern,
you may use a simple statement like, “I can see your point.”
iii).Restate the Objections: To be sure that you understood the customer, you can restate his or
her objections. Do not repeat the customer’s concern word for word. Instead you should paraphrase
the objections.
iv).Answer the objections: Try to find appoint of agreement with the customer before answering
each objection. Then answer each objection tactfully, keeping in mind the customer’s feelings.
Never answer with an air of superiority or with indifference to the person’s concern

d). Specialized methods of handling questions: There are seven specialized methods of handling
questions. These are as follows:

i).Yes, but: The yes, but method first acknowledges the customer’s objections and then reveals
another point of view. Here the idea is not to make the customer feel as if you are accusing him or
her of being wrong.

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ii). Question method: The customer is questioned in an effort to learn more about the objections
raised. This may help you learn more about the customer’s needs. iii). Superior Point: This
method permits the salesperson to acknowledge objections as being valid and to offset those
objections with other features and benefits of the product.

iv). Direct Denial: This method provides proof and accurate information in answer to objections.

v).Demonstration: This method requires the salesperson to illustrate one or more features of a
product or a service. I exemplify the adage, “seeing is believing.” The demonstration method can
be quite convincing and should be used when appropriate.

vi). Third Party: The third party method involves using a previous customer who can give a
testimonial about the product.

vii). Boomerang: With the Boomerang method, the objection comes back to the customer as a
selling point. The salesperson can return the objection to the customer using the Boomerang. For
example, a customer may object by saying, “this jacket is too light. It can’t possibly keep me
warm.” The salesperson may answer by saying, “actually, the lightness of this jacket is due to a
new insulation called thinsulate, which is warm.” Thinsulate will keep you warm without the jacket
being bulk.
Step 6: Closing the sale
At a certain point in the sales process, your customer will be ready to make a purchase. When this
becomes apparent, it is up to you to close the sale. Closing the sale is obtaining positive agreement
from the customer to buy. You close a sale when your customer is ready to buy.
a).Buying Signals: To detect any opportunity to close the sale, look for buying signals. Buying
signals are things a customer does or says to indicate a readiness to buy. These buying signals
include facial expressions, actions, and comments. For instance, comments like, “This is exactly
what I was looking for.”

b). Specialized methods for closing the sale: This approach demands that, once you have
recognized a buying signal, you should attempt to close the sale. There are altogether five methods
that one can choose from.

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i). Which Close: Under this method, the customer is encouraged to make a decision between two
items. The salesperson should review the benefits of each item and then ask the customer which
one of the two he or she prefers. ii).Standing room only close: This is used when a product is in
short supply or when the price will go up in the near future. For example, the salesperson may say
that, “This is the last pair of shoes I have in your size.”

iii).Assumption Close: In the assumption close, you assume the close when you think the
customer is ready to buy. But if you discover that the customer is not ready, simply continue with
the sales presentation. iv).Direct close: The direct close is a method in which you as a salesperson
ask for the sale. v).Service Close: Sometimes you run into obstacles or instances that require
special services in order to close the sale.
Step 7 : Suggestion Selling
Suggestion selling is selling additional goods or services to the customer.
Rules for suggestion selling: There are five rules for suggestion selling as given below:
Rule 1: Do the suggestion selling after the customer has made a commitment to buy and before
payment is made or the order written. Rule ii: Make your recommendations from the customer’s
point of view and give at least one reason for your suggestion. Rule iii: Make the suggestion
definite. For example, say that, “This oil is recommended by the manufacturer for the engine.”
Rule iv: Show the item you are suggesting. Rule v: Make the suggestion positive. For example,
you could say “This scarf will match the colour of your shirt.”
Step 8: Reassuring and following up
Before you leave your client or before the customer departs, reassure the person of the wise buying
choices which have been made. If an item needs special care or specific instructions, take the time
to educate your customer about it. Always thank your customers.
Follow up: The follow-up includes making arrangements to follow through on all promises made
during the sales process and checking on customer satisfaction with the purchase.

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UNIT 10

10.0 THE BUSINESS PLAN

LEARNING OBJECTIVES
By the end of this unit, you should be able to:
• Define a business plan.
• Discuss the features of the business plan.
• Construct a simple business plan for an enterprise.

10.1 WHAT IS A BUSINESS PLAN?

A business plan is a proposal that describes every part of your new business to potential investors
and financing agencies. It maps out the course of your business.
A business plan is for the owners of the enterprise. Thus, the owner may need to develop a business
plan because it will help him or her to think carefully about what the business is going to do, and
what resources will be needed. This will help him calculate how much start-up capital is needed.
It is important that the entrepreneur has a clear idea of what the business is going to do.

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A business plan is also meant for the financial backers. It is meant to help the owner source for
funds. Financial backers will need to be convinced that the new business is a sound investment.

10.2 OUTLINE OF THE BUSINESS PLAN

Given below is an outline of a business plan:

1. EXECUTIVE SUMMARY
- Description of the business concept and the business.
- The opportunity and strategy.
- The target market and projections.
- The competitive advantages.
- The economics, profitability, and harvest potential.
- The team (summarize the relevant knowledge, experience, and skills of your team
members).
- The offering (how much of the enterprise are you prepared to offer to equity and
debt financing).

2. THE INDUSTRY AND THE ORGANIZATION AND ITS PRODUCTS OR

SERVICES
- The industry
- The organization (company) and the concept.
- The products or services.
- Entry and growth strategy.

3. MARKET RESEARCH ANALYSIS

- Customers.
- Market size and trends.
- Competition and competitive edges.
- Estimated market share and sales.
- Ongoing market evaluation

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4. THE ECONOMICS OF THE BUSINESS
- Gross and operating margins (selling price less variable costs).
- Profit potential and durability.
- Fixed, variable, and semi-variable costs.
- Months to breakeven.
- Months to reach positive cash flow.

5. MARKETING PLAN
- Overall marketing strategy.
- Pricing.
- Sales tactics.
- Service and warranty policies.
- Advertising and promotion.

6. DESIGN AND DEVELOPMENT PLANS

- Developing status and tasks.
- Difficulties and risks.
- Product improvement and new products.
- Costs.
- Proprietary issues

7. MANUFACTURING AND OPERATIONS PLAN

- Operating cycle (how will seasonal production loads be handled?)
- Geographical location.
- Facilities and improvement.
- Strategy and plans.
- Regulatory and legal issues.

8. MANAGEMENT TEAM
- Organization.
- Key management personnel.

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 - Management compensation and ownership.
- Other investors.
- Employment and other agreements and stock option and bonus plans.
- Board of Directors.
- Other shareholders, rights, and restrictions.
- Supporting professional advisors and services.

9. OVERALL SCHEDULE
- A schedule that shows the timing and interrelationship of the major events necessary
to launch your business and realize its objectives is an essential part of a business
plan. You may include the following:

a) Lay out (use a bar chart) the cash conversion cycle in the business to capture
for each product or service expected the lead and elapsed times from an
order to the purchase of raw materials or inventory to transportation and
collection.

b) Prepare a monthly schedule that shows the timing of such activities as

product development, market planning, sales programs, production, and
operations, and that show the timing of the primary tasks required to
accomplish an activity.

c) Show on the schedule the deadlines or mile stones critical to the business’s
success, such as : completion of design and development, obtaining of sales
representatives, starting of production or operations, delivery of first sales,
etc.

10. CRITICAL RISKS, PROBLEMS, AND ASSUMPTIONS

- Description of the risks and the consequences of adverse outcomes relating to your
industry, your organization and its personnel, your product’s market appeal, and

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 the timing and financing of your startup business. Be sure to include assumptions
concerning sales projections, customer orders, and so forth.

11. THE FINANCIAL PLAN

- Actual income statements and balance sheets.
- Pro forma income statements (the plan for profit).
- Pro Forma balance sheets.
- Pro forma cash flow analysis (cash flow projection).
- Breakeven chart and calculation.
- Cost control.
- Highlights (highlight important conclusions).

12. PROPOSED ORGANIZATIONAL OFFERING

- Desired financing (how much money is required to carry out your business).
- Offering (stock, securities to be sold).
- Capitalization (number of outstanding shares after offerings).
- Use of funds.
- Investor’s return.

13. APPENDIX
- Include pertinent information here that is too extensive for the body of the business
plan but which is necessary e.g. reports, list of suppliers, special location factors,
facilities, technical analysis, copies of regulatory approval etc.

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UNIT 11

BUSINESS TRANSACTIONS
OBJECTIVES:
- Define business transactions.
- State three types of business transactions.
- Discuss the three types of business transactions.

INTRODUCTION
Business transaction refers to the legal process of exchanging goods with goods and services. It
is the process of buying and selling goods and services. For transaction to take place, there must
be a seller who has goods or services and then a buyer who wants the goods or services. The two
must agree to make the contract binding.

11.1 TYPES OF BUSINESS TRANSACTIONS

A. Barter Transaction

This is the exchange of goods with goods or services. It is the oldest type of business transaction
in the world. In this type of transaction, people are able to exchange goats with pigs, beans with
clothes, chickens with a service of cultivating a piece of land etc.
B. Credit Transaction

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This is the type of transaction where the services/goods are collected and payment is made later.
In this type of transaction, an invoice is used to prove that a debt is there.
C. Cash Transaction

This is the type of transaction where services/goods are collected and payment is made
immediately. With the coming of technology, there are many ways of participating in cash
transactions. These include;
- Payment by hard cash.
- Payment by cheque
- Payment by the debit card/Visa card.
- Internet/mobile banking.

REVISION QUESTION
State and discuss the types of business transactions available. Clearly state the advantages and
disadvantages of each. (20 marks)

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UNIT 12

12.0 BUSINESS DOCUMENTS

OBJECTIVES
- Define business documents.
- State the significance of business documents.
- Explain the main features of the business documents.
- List and describe at least 15 business documents.

INTRODUCTION
Business documents are documents that are used in business transactions. Business documents
make the business transaction legal and binding. In the exchange of goods and services, there are
many documents that are used for the smooth running of the business. Documents are written
records of transactions which take place between different persons or parties.

12.1 SIGNIFICANCE OF BUSINESS DOCUMENTS

I. To prove that a business activity has taken place.
II. To provide future reference in case it becomes necessary.
III. To provide information that is useful for various purposes such as making business
decisions and payment.
IV. To work as a source form which other business records can be made such as book
keeping records.
V. To provide back ground information about the business.
VI. To provide detailed information about the goods and services available for sale e.g.
catalogue, quotation, price list and many more others.
VII. To acknowledge receipt or payment of money e.g. cash sale slip and receipt.
VIII. To know the customers who have taken goods on credit (debtors), e.g. invoice.

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 IX. To help in proper assessment of taxes such as VAT basing on the volume of sales,
purchases and many more.

Various transactions use different documents depending on the type of transaction and the terms
of payment agreed upon between the buyer and the seller.

12.2 CONTENT/FEATURES OF BUSINESS DOCUMENTS

a. Name and address of the business originating the document (seller/buyer).
b. Name and address of the business receiving the document (seller/buyer).
c. Name of the document e.g. quotation, receipt etc.
d. Document number (serial number)
e. Date when the document is written.
f. Types/description of goods/services in question; e.g. dozens, boxes, colour, size etc.
g. Quantity of goods
h. Unit price and total amount.
i. Terms and conditions of the transaction.
j. Name/signature of the person who prepared/received.

12.3 TYPES OF BUSINESS DOCUMENTS

1. CATALOGUE

It is a business document which is more like a pamphlet or booklet that displays pictures and
prices of the goods on sale. It may also be used for advertising.
2. PRICE LIST

It is a list of items sold by the person to whom an Inquiry is sent, together with the price at which
each item is sold. It can serve the purpose of the catalogue.

3. INQUIRY NOTE

This is a letter sent by a potential buyer to the supplier/seller seeking information about the
goods or services offered for sale, the prices pertaining them and the terms of sale and delivery
of goods.
4. INVITATION TO TENDER

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This is a document that is similar to an inquiry note but it is addressed to more than one seller or
buyer of good or services requiring them to state the conditions under which they are willing to
sell or buy the goods. Invitation to tender are usually advertised in newspapers, radios and
televisions.
5. QUOTATION

This is a business document prepared in response to an Inquiry by the potential seller to the
possible buyer containing terms and conditions under which goods can be sold. It describes the
goods/services, unit price and total, and the terms and conditions for the transactions.
6. ORDER FORM

It is a business document which is sent by a prospective buyer to the seller requesting him to
supply the specified goods. It is also termed as Local Purchase Order (L.P.O). It authorizes the
seller to supply the goods/services requested.
7. PROFORMA INVOICE

It is a business document sent by the seller to the buyer showing the quantity sent and the
prospective prices. It shows the terms and conditions under which the goods have been supplied.
It is similar to an invoice but it does not guarantee credit. It may be sent together with the goods.
8. INVOICE

It is a summary of the details concerning goods supplied on credit. It is usually written in

duplicate where by the seller retains a copy and the original is sent to the buyer. It acts as
notification of the amount owed by the buyer for the goods and services bought and evidence of
the debt to the seller.
9. ADVICE/DISPATCH NOTE

It is a document sent by the supplier/seller to the buyer informing him/her that the goods ordered
are on the way. It shows the exact time the goods should be expected. This gives the buyer ample
time to prepare transport and storage for the goods.

10. DELIVERY NOTE/CONSIGNMENT NOTE

It is a document sent by the seller to the buyer along with the goods being delivered. Its purpose
is to serve as evidence of physical transfer of the goods from the seller to the buyer. The buyer

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signs on it confirming that the goods ordered have been received in good condition and as
ordered. If there is any error noticed, the buyer has to notify the supplier as soon as possible for
correction to be made. In a consignment, the supplier/sender is called a consigner and the
receiver/buyer is termed as the consignee.
11. CREDIT NOTE

It is a business document sent by the seller to the buyer to adjust an overcharge or if part of the
goods supplied are returned to the supplier. A credit note can be sent if wrong description or
quantities or qualities of goods are sent, if the goods are damaged or expired e.t.c.
12. DEBIT NOTE

It is a business document prepared by the seller to the buyer adjusting the undercharge in the
invoice which could be wrong price in the quotation, errors in calculating, omissions etc. it
means that the buyer has to pay more than the initial amount.
13. CASH SALE SLIP

It is a business document prepared by the seller to the buyer who pays cash at the time of
purchasing the goods. It serves as evidence of receipt of money in cash and is only issued for
cash transactions.
14. RECEIPT

It is a business document prepared by the seller to the buyer acknowledging payment of debt by
the buyer and concludes a credit transaction.
15. CHEQUE

It is a business document or an order from an account holder to his/her bank, requesting the bank
to pay the stated amount of money to the named person or bearer. The cheque book must
officially be issued by the bank, should have a cheque number, account number from which the
money should be withdrawn, the bank name where the account is operated and space where the
payee is named, amount stated and for the signature. Moreever, it has the counterfoil which
remains in the cheque book, showing the details of the cheque being given out.
16. STATEMENT OF ACCOUNT

It is a document issued by the seller to the buyer indicating a summary of transactions between
the seller and buyer for a particular period of time. It is issued periodically, usually monthly,

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quarterly or semi-annually. It usually starts with the balance brought forward followed by entries
relating to transactions and ends with a closing balance which the supplier expects to be paid.

REVISION QUESTIONS
1. Define business documents.
2. Outline the significance of business documents (at least 10).
3. Explain the main features of the business document.
4. List and describe at least 15 business documents.

UNIT 13

13.0 BASICS OF ACCOUNTING

Objectives;
• Define Accounting.

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 • Explain the accounting Terms
• Prepare the trial balance.
• Prepare the Balance Sheet.
• Prepare the Income and Expenditure Account.
• Prepare the Cash flow statements.

13.1 INTRODUCTION TO ACCOUNTING

Accounting is the process of gathering, analyzing, recording, summarizing and reporting the
economic value of the business to the stakeholders. An accountant (or bookkeeper) collects
documentation, analyses and records this information, categorizes it (i.e. organizes the different
bits of information under certain categories), and presents it in specific formats. Accounting
information is finally presented in the form of financial statements which are the key reports of a
business.

Bookkeepers are usually involved more in data collection and entry. Accountants can fulfill
this role too, but more often these days are involved in preparing and presenting financial
statements, and fulfilling an advisory or consulting role. Accountants have even become
business strategists, intimately involved in guiding the operations of a business. Accounting in
general deals with identifying business activities, like sales to customers, recording these
activities, like journalizing, and communicating these activities with people outside the
organization with financial statements.

Financial accounting, however, is a subsection of the general field of accounting that focuses on
gathering and compiling data in order to present it to external users in a usable form. So what
does that mean? Basically, financial accounting's main purpose is to provide useful, financial
information to people or groups outside of companies often called external users. Financial
accounting is the periodic reporting of a company's financial position and the results of
operations to external parties through financial statements, which ordinarily include;
a. the balance sheet (statement of financial condition),
b. income statement (the profit and loss statement, or P & L),
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 c. statement of cash flows and
d. the statement of changes in owners' equity.

Financial statements are relied upon by suppliers of capital - e.g., shareholders, bondholders and
banks - as well as customers, suppliers, government agencies (e.g. Z.R.A for tax) and
policymakers. The key concept here is that external users must be able to understand and use this
financial information when they are making decisions about the company. If the information
cannot be used, it is worthless. There are many different types of external users who want or
need financial information for different purposes. All of these external users have something in
common. They are interested in doing business with a company but only have limited access to
the company's financial information. Financial accounting aims as providing financial
information that is reliable, relevant, and comparable to these external users.

DOUBLE ENTRY ACCOUNTING

Double entry literally means two entries being made in one transaction and we literally
make two entries; a debit entry and a credit entry.

Double entry accounting, also called double entry bookkeeping, is the accounting system that
requires every business transaction or event to be recorded in at least two accounts. This is the
same concept behind the accounting equation. Every debit that is recorded must be matched with
a credit entry. In other words, debits and credits must always be equal in every accounting
transaction and in their total. Every modern accounting system is built on the double entry
bookkeeping concept because every business transaction affects at least two different accounts.
For example, when a company takes out a loan from a bank, it receives cash from the loan and
also creates a liability that it must repay in the future. This single transaction affects both the
asset accounts and the liabilities accounts.

Example
Let's take a look at the accounting equation to illustrate the double entry system. Here is the
equation with examples of how debits and credit affect all of the accounts.

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As you can see from the equation, assets always have to equal liabilities plus equity (capital). In
other words, overall debits must always equal overall credits. For example, if an asset account is
increased (debited), either a liability or equity account must be increased (credited) for the same
amount.
This is always the case except for when a business transaction only affects one side of the
accounting equation. For example, if a restaurant purchases a new delivery vehicle for cash, the
cash account is decreased by the cash disbursement and increased by the receipt of the new
vehicle. This transaction does not affect the liability or equity accounts, but it does affect two
different assets accounts. Thus, assets are decreased and immediately increased resulting in a net
effect of zero. The concept of double entry accounting is the basis for recording business
transaction and journal entries.
Now that we have talked about the double entry bookkeeping system, let's move on to recording
journal entries.

13.3 BOOKS OF ORIGINAL ENTRY (THE ACCOUNTING JOURNALS)

Books of original (first) entry also called Accounting Journals are books where transactions
are first entered before transferring the entries to other books of accounts (the Ledger). An
accounting journal is a record of business transactions and events for a specific account. In other
words, a journal chronologically stores all the journal entries for a specific account or group of
account in one place, so that management and bookkeepers can analyze the data. Accounting
journals are often called the book of first entry because this is where journal entries are made.
Once a business transaction is made, the bookkeeper records that event in the form of a journal
entry in one of the accounting journals. Then, at the end of a period, the journals are posted to

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accounting ledgers for reporting purposes. Companies use many different journals depending on
their accounting system and industry, but all companies use the general journal.
There are basically seven books of original entry (Journals). These are;
i. The Purchases Day Book; where all the purchases bought for sale are recorded.
ii. The Sales Day Book; where all the goods sold to customers are recorded.
iii. The Purchases Returns Day Book; where the returned purchases to suppliers are
entered.
iv. The Sales Returns Day Book; where the sales returned by the customers are entered.
v. The Cash Book; where cash transactions (receipts and payments) are entered.
vi. General Journal; where purchases of fixed assets, expenses etc. are recorded.
vii. The Petty Cash Book; where cash payment for petty (small) daily expenses like fuel,
transport, cleaning materials, postage, communication etc. are recorded under the
imprest system.
The format for the Sales Journal, Purchases Journal, Sales Returns and Purchases Returns
Day Books (Journals).

Name of the Business:

Name of the book:
Period of preparing:
DATE DESCRIPTION/DETAILS FOLIO INVOICE no. AMOUNT

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DATE: when the transaction took place.

DESCRIPTION: Details of the transaction/ account/name involved in the transaction.

FOLIO: The reference for the corresponding entry where the transaction will be posted e.g.
Ledger page number.

INVOICE: the number on the business document (Invoice) which was issued or received.

AMOUNT: The total amount indicated on the business document.

TASK:

Prepare the necessary Books of Original entry for the following transactions.

June 1: bought goods on credit from B. Banda at K 4000.00, invoice no. 10201.

June 2: sold goods on credit to J. Mary for K 5000.00, invoice no. 20012.

June 4: returned goods to B. Banda for K1000.00, Debit Note no. 202.

June 5: J. Mary returned goods for K 2000.00, credit note no. 4002

13.4 THE CASH BOOK

It is a book where receipts and payments of cash and cheque are recorded. There are three types
of cash books. These are;

i. Single column cash book: it records receipts and payments of cash or bank only.

ii. Two (Double) column cash book: records receipts and payment of both cash and bank
(cheque). It has the column for cash and another for bank.

iii. Three Column Cash Book: records receipts and payments of cash, bank, and
discounts received and allowed.

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RULES WHEN ENTERING IN THE CASH BOOK

i. all receipts of cash are debited.

ii. All payments of cash are credited.

iii. Debit every increase in assets and receivables, and credit every decrease in assets.

iv. Credit all increase in capital and liabilities (loans and notes payables) and debit any
decrease.

v. Debit any expense incurred.

vi. Debit any losses made.

vii. Credit any revenue, sales and profits made.

viii. Debit all the discounts allowed and debit all the discounts received.

13.5 TRIAL BALANCE (TB)

A trial balance is a report that lists the ending balances of each account in the chart of accounts.
Bookkeepers and accountants use this report to consolidate all of the T-accounts into one
document and double check that all transactions were recorded in proper journal entry format.
Bookkeepers typically scan the year-end trial balance for posting errors to ensure that the proper
accounts were debited and credited while posting journal entries. Internal accountants, on the
other hand, tend to look at global trends of each account. For instance, they might notice that
accounts receivable increased drastically over the year and look into the details to see why. Tax
accountants and auditors also use this report to prepare tax returns and begin the audit process.

Format

The trial balance format is easy to read because of its clean layout. It typically has four columns
with the following descriptions: account number, name, debit balance, and credit balance. It’s

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always sorted by account number, so anyone can easily scan down the report to find an account
balance. This order also tends to be in balance sheet order since the average chart of accounts
follows the accounting equation starting with the assets.

Not all accounts in the chart of accounts are included on the TB, however. Usually only active
accounts with year-end balance are included in the TB because accounts with zero balances don’t
make it on the financial statements. For example, if a company had a vehicle at the beginning of
the year and sold it before year-end, the vehicle account would not show up on the year-end
report because it’s not an active account. The report also totals the debit and credit columns at
the bottom. As with all financial accounting, the debits must equal the credits. If it’s out of
balance, something is wrong and the bookkeeper must go through each account to see what got
posted or recorded incorrectly. This step saves a lot time for accountants during the financial
statement preparation process because they don’t have to worry about the balance
sheet and income statement being off due to an out-of-balance error. Since most companies have
computerized accounting systems, they rarely manually create a TB or have to check for out-of-
balance errors. They computer system does that automatically.

Process

When the accounting system creates the initial report, it is considered an unadjusted trial
balance because no adjustments have been made to the chart of accounts. This is simply a list of
all the account balances straight out of the accounting system.
As the bookkeepers and accountants examine the report and find errors in the accounts, they
record adjusting journal entries to correct them. After these errors are corrected, the TB is
considered an adjusted trial balance.
We still aren’t done with this report yet though. The errors have been identified and corrected,
but the closing entries still need to be made before this TB can be used to create the financial
statements. After the closing entries have been made to close the temporary accounts, the report
is called the post-closing trial balance.
Let’s take a look at an example.

Example

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From the following list of balances extracted from the ledger,
prepare the trial balance.
Cash $ 32,800
Accounts receivable 300
Inventory 39,800
Leasehold Improvement 100,000
Accounts Payable 49,000
Long-term liabilities 99,500
Common Stock 10,000
Dividends 1,000
Revenues 27,800
Cost of goods sold 10,200
Rent Expenses 500
Supplies Expenses 500
Utilities Expenses 200
Wages Expenses 500
Interest Expenses 500
SOLUTION

Here’s an example of a trial balance. As you can see, the report has a heading that identifies the
company, report name, and date that it was created. The accounts (details/description) are listed
on the left with the balances under the debit and credit columns.

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The debit and credit columns must equal each other totaling a zero balance.

13.6 THE ACCOUNTING EQUATION AND THE FINANCIAL POSITION

These three elements, assets, owners’ equity (Capital) and liabilities, when compared to one
another, show what we call the financial position of the business.

Let’s have an example...

Would you invest in the following business?

Probably not 90% of the assets of this business will be used to pay debts in future. The equity,
which reflects the net worth of the business (the real worth to the owner or owners) is only
$10,000. The financial position of this business is thus poor.

What about this business – would you invest in it?

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Well, in this case you certainly would be quite apprehensive about investing. The total debts of
the business are greater than the assets it has to pay off these debts. As a result, the owner or
owners are making a loss. The owner or owners may have to fork out $20,000 out of their own
pockets to pay the liabilities. Where the total debts of the business are greater than its assets, we
say that the business is insolvent. This means that it cannot pay all its debts. Obviously
the financial position of this business is terrible.

Now how about this business?

This business looks a bit healthier. The business can comfortably pay all of its debts. In fact, only
40% of the assets will be used up to pay the debts. 60% of the assets are really owned by the
owner. The net worth of the business is $60,000. The financial position of this business is quite
good.

Bear in mind that it is not always a bad thing to have debts, where you have a project that will
bring you $40,000, but you need to invest $5,000 to start with (and you don’t have the money
yourself), it would be a wise move to borrow the $5,000 (thereby creating a liability of $5,000
towards the bank).

Accounting Equation

The accounting equation, also called the basic accounting equation, forms the foundation for all
accounting systems. In fact, the entire double entry accounting concept is based on the basic
accounting equation. This simple equation illustrates two facts about a company: what it owns
and what it owes.The accounting equation equates a company's assets to its liabilities and equity.

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 This shows all company assets are acquired by either debt or equity financing. For example,
when a company is started, its assets are first purchased with either cash the company received
from loans or cash the company received from investors. Thus, all of the company's assets stem
from either creditors or investors i.e. liabilities and equity. Here is the basic accounting equation.

As you can see, assets equal the sum of liabilities and owner's equity. This makes sense when
you think about it because liabilities and equity are essentially just sources of funding for
companies to purchase assets. Assets will always equal liabilities and owner's equity. If assets
increase, either liabilities or owner's equity must increase to balance out the equation. The
opposite is true if liabilities or equity increase.

Now that we have a basic understanding of the equation, let's take a look at each accounting
equation component starting with the assets.

Assets

An asset is a resource that is owned or controlled by the company to be used for future benefits.
Some assets are tangible like cash while others are theoretical or intangible like goodwill or
copyrights.Another common asset is a receivable. This is a promise to be paid from another
party. Receivables arise when a company provides a service or sells a product to someone on
credit.All of these assets are resources that a company can use for future benefits. Here are some
common examples of assets:

• Cash
• Accounts Receivable
• Prepaid Expenses
• Vehicles
• Buildings
• Goodwill
• Copyrights

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• Patents

Liabilities

A liability, in its simplest terms, is an amount of money owed to another person or organization.
Said a different way, liabilities are creditors' claims on company assets because this is the
amount of assets creditors would own if the company liquidated. A common form of liability is a
payable. Payables are the opposite of receivables. When a company purchases goods or services
from other companies on credit, a payable is recorded to show that the company promises to pay
the other companies for their assets.Here are some examples of some of the most common
liabilities:

• Accounts payable
• Bank loans
• Lines of Credit
• Personal Loans
• Officer Loans
• Unearned income

Equity – also knowns as Capital

Equity represents the portion of company assets that shareholders or partners own. In other
words, the shareholders or partners own the remainder of assets once all of the liabilities are paid
off. Owners can increase their ownership share by contributing money to the company or
decrease equity by withdrawing company funds. Likewise, revenues increase equity while
expenses decrease equity.Here are some common equity accounts:

• Owner's Capital
• Owner's Withdrawals
• Revenues
• Expenses

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• Common stock
• Paid-In Capital

Example

Let's take a look at the formation of a company to illustrate how the accounting equation works
in a business situation.

Betty is an entrepreneur who wants to start a company selling speakers for car stereo systems.
After saving up money for a year, Betty decides it is time to officially start his business. She
forms Speakers, Inc. and contributes $100,000 to the company. This business transaction
increases company cash and increases equity by the same amount.

13.7 FINANCIAL STATEMENTS

Financial statements present the results of operations and the financial position of the company.
Four statements are commonly prepared by publicly-traded companies: balance sheet, income
statement, cash flow statement and statement of changes in Owners’ Equity.

13.7.1 THE BALANCE SHEET (STATEMENT OF FINANCIAL POSITION)

The balance sheet tells you whether the company can pay its bills on time, its financial flexibility
to acquire capital and its ability to distribute cash in the form of dividends to the company's
owners.
Layout of the Balance Sheet
The top of the balance sheet has three items:

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 a. the legal name of the entity;

b. the title (i.e., balance sheet or statement of financial position); and

c. the date of the statement. Importantly, the financial position presented is always
for the entity itself, not its owners.

The balance sheet is always for a specific point in time: instead of just a date of, say, December
31, 20XX. The balance sheet itself presents the company's assets, liabilities and shareholders'
equity.

• Assets are items that provide probable future economic benefits

• Liabilities are obligations of the firm that will be settled by using assets
• Equity (variously called stockholders equity, shareowners equity or owners’ equity) is the
residual interest that remains after you subtract liabilities from assets

Hence the key accounting equation:

Assets = Liabilities + Owners Equity, or A=L+OE

ASSETS
Assets are broken down into current and noncurrent (or long-term). Assets are listed from top to
bottom in order of decreasing liquidity, i.e., how fast they can be converted to cash.
a. Current assets
Current assets are cash and other assets that are expected to be used during the normal operating
cycle of the business, usually one year. They typically include cash and cash equivalents, short-
term investments, accounts receivables, inventory and prepaid expense.
b. Non-Current assets
Noncurrent assets will not be realized in full within one year. They typically include long-term
investments: property, plant and equipment; intangible assets and other assets.

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LIABILITIES
Liabilities are listed in order of expected payment. Obligations expected to be satisfied within
one year are current liabilities. They include accounts payable, trade notes payable, advances
and deposits, current portion of long-term debt and accrued expenses. Noncurrent liabilities
include bonds payable and other forms of long-term capital.

CAPITAL OR OWNERS’ EQUITY

The structure of the owners' equity section depends on whether the entity is an individual, a
partnership or a corporation. Assuming it's a corporation, the section will include capital stock,
additional paid-in capital, retained earnings, accumulated other comprehensive income
and treasury stock.
Balance sheet data can be used to compute key indicators that reveal the company's financial
structure and its ability to meet its obligations. These include working capital, current
ratio, quick ratio, debt-equity ratio and debt-to-capital ratio.

13.7.2 THE INCOME STATEMENT

The Income Statement (also known as the Trading Profit and Loss Account or T.P&L) tells you
both the earnings and profitability of a business. The T.P&L is always for a specific period of
time, such as a month, a quarter or a year. Periodic income statements are essential, because they
allow users to compare results for the company over time and to the results of other firms for the
same period. Depending on the industry, year over year comparisons that eliminate seasonal
variables may be especially useful. This section of the income statement is used to compute the
key profitability ratios of gross margin, operating margin, and pretax margin that help readers
assess the ability of the company to generate income from its activities.
The TP&L presents the Gross Profit (Net Sales – Cost of goods sold) then the Net Profit/Loss
(Gross profit - Expenses). The Income Statement is all about the total income incurred in a given
period minus all the expenses for the period.

TASK
ARONZO ENTERPRISES traded from July, 2016 to June, 2017 and below is the list of the
balances. K

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 Capital at start 1 July 2016 121,900
Trade payables 19,000
Sales 280,000
Returns outwards 13,000
Discounts allowed 2,000
Discounts received 1,500
Fixtures and fittings @ cost 120,000
Depreciation fixtures & fittings 12,000
Trade receivables 24,000
Inventory 1 July 2016 50,000
Purchases 135,000
Returns inwards 5,000
Carriage outwards 4,000
Drawings 18,000
Carriage inwards 11,000
Rent 7,000
Rates 8,000
Insurance 10,000
Heating & lighting 12,000
Postage 500
Stationery 700
Telephone 400
Advertising 5,000
Salaries & wages 35,000
Bad debts 1,500
Cash in bank 6,000
Cash in hand 300
5 year loan from Banda 20,000
Inventory at 30 June 2017 17,000

Required:
a. Prepare the Trial Balance as at 30th June, 2017.
b. Prepare income statement for the year end 30 June 2017.
c. Prepare the Balance Sheet as at that date.

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UNIT 14

14.0 BUDGETING

14.1 What is a Budget?

There are numerous definitions of the term 'budget' but it is most simply defined as:
"a plan expressed in financial terms".An alternative definition was suggested by Henley et al in
1992, and is still valid today.Budgeting is a ‘process of measuring and converting plans for the
use of real (i.e. physical resources) into financial values.’ It is the classic problem of how to add
together quantities of apples and oranges into a meaningful economic measurement, the only

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practical way for everyday use is to express their economic values in terms of monetary costs
and revenues. Through the process of budgeting the finance function provides the essential link
between management planning and management control.
It is clear from these definitions that budgeting and planning are closely interlinked. Budgets
represent the expression in financial terms of an organisation’s policies and constitute a
statement of intent against which any achievements or for that matter failings can be compared.
Historically Budgeting has been synonymous with financial planning and authorisation for the
next fiscal year. However more recently budgeting has always been seen as a tool in the
implementation of strategic plans.
Anthony (2007) categorises organisational controls at three levels: strategic, management and
operational. Strategic planning involves the use of information on the environment and
information on internal service capabilities to determine the future strategy of the organisation.
Management control systems entail the implementation of strategy and the effective use of
resources. In most organisations budgetary control is one on the most important forms of
management control.

14.2 Objectives of Budgeting

The objectives of budgeting depend on two key factors:

• the type of budget being produced;

• the organisation for which the budget is being produced.

Budgets serve a number of useful purposes which are key to an organisation’s success. These
include;
Planning
Managers are required to produce detailed plans to enable the implementation of the long term or
strategic plan. The annual budgeting process encourages managers to plan for future operations,
refine existing strategic plans and consider how they can respond to changing circumstances.
This encourages managers to anticipate problems before they arise and ensures reasoned decision
making. Without this incentive the pressures of day to day operations may tempt managers not to
plan for future operations and hasty decisions based on expediency rather than reasoned
judgement will be minimised.

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Co-ordination
Budgeting facilitates consolidation and co-ordination and allows the actions of the different parts
of the organisation to be brought into a common plan. It also compels managers to examine the
relationship between the different parts of an organisation when making decisions and in assists
in identifying and resolving conflicts. An example of the type of conflict which could arise in a
local authority setting would be between a purchasing manager who wants to buy road salt in
bulk to obtain large discounts, a stores manager who wishes to avoid large stock levels of salt an
accountant who is concerned about a possible overspend on the Highways budget and the
Highways manager who wants to avoid running out of salt in bad weather and therefore carry
high levels of stock. Budgeting aims to reconcile these differences.
Communication
Senior management can use budgets to communicate corporate objectives downwards and ensure
that other employees understand them and co-ordinate their activities to attain them. The act of
preparation as well as the budget itself will also improve communication. All managers within
the organisation must have a clear understanding of the role which they are required to play in
ensuring budgetary compliance. This ensures that the most appropriate individuals are made
accountable for budget implementation.Participation in budget setting relates to the extent that
subordinates are able to influence the figures incorporated in their targets. Participation is often
referred to as bottom-up budget setting whereas a non-participatory approach whereby
subordinates have little influence on the target setting process is sometimes called top-down
budget setting.
Motivation
Budgets motivate managers to perform in line with organisational objectives. It therefore, sets a
standard which under certain circumstances managers may be motivated to achieve. It is
important, however, that managers are involved in the budget setting process and that budgets
are used as a tool to assist them in managing their departments. With ‘top-down’ approaches
there is a risk that dysfunctional motivational will occur.
Control
Managers can also use budgets to control the activities for which they are responsible. Analyses
of variances allow managers to identify those costs which do not conform to the long term plan
and therefore may require alteration. By investigating the reasons for budget deviations

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managers may also be able to identify inefficiencies. The budget forms the basis of a controlling
mechanism for the various resources of an organisation which is achieved by comparing the
resource measured to the end of a given period with that which was expected. This approach can
be used for all measurable resources and activities within the organisation – not just those which
are directly financial.
Evaluation
Budgeting can also be used as an effective management tool. It provides an important
mechanism for informing managers as to how well they are performing in meeting targets they
have previously helped to set and an employee's ability to meet agreed targets is used is many
organisations to determine promotions and bonuses. In this circumstance budgets will therefore
influence human behaviour.
Authorisation
A budget is normally prepared by the management of a body, but is normally approved by a
legislative body or director representing the interests of everyone. Thus the objective of the
budget in an enterprise is to achieve authorisation to execute the plan.

UNIT 15

15.0 MANAGING AN ENTERPRISE

OBJECTIVES
By the end of this unit, you should be able to:
• Define the term ‘management.’
• Engage in simple planning and decision making for an enterprise.
• Organize an enterprise’s activities and resources.
• Control the enterprise’s activities as it works towards its goals.

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15.1 WHAT IS MANAGEMENT?
Management is a set of activities (including planning and decision making, organizing, leading,
and controlling) directed at an organization’s resources (human, financial, physical, and
information) with the aim of achieving organizational goals in an efficient and effective manner.
In this unit we are going to look at management and how it can be applied to an enterprise. We
will start by looking at planning, and then the rest of the other required management processes.

15.2 PLANNING AND DECISION MAKING

To run an enterprise successfully, a manager has to plan and has to also make decisions.
What is planning?
Planning is ascertaining where an organization is at the present time and deciding where it should
be in the future. To be more precise, planning is a process that a planner uses to identify and select
appropriate goals and courses of action for an organization.
In its simplest form planning is all about setting an organization’s goals and deciding how best to
achieve them. It is one for the four principal functions of management.

a). The Importance of Planning

Planning will help an enterprise and its managers to (a) offset uncertainty, (b) facilitate control, (c)
gain economical operation by minimizing costs, and (d) focus attention on achieving objectives.

15.3 STRATEGIC PLANNING

A strategic plan is a general plan outlining decisions of resource allocation, priorities and action
steps necessary to reach strategic goals. These plans are set by the top level managers. In other
words, the purpose of strategic planning is to (1) determine the major objectives of an organization,
(2) adopt courses of action to achieve these objectives, and (3) ensure there are adequate resources
available to achieve them.
In general, strategic planning deals with the general direction the organization is taking.
15.4 TACTICAL PLANNING
Tactical planning is the kind of planning that centers on the key targets which have been set by
strategic planners. Tactical plans are developed to implement specific parts of a strategic plan.

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Tactical plans are typically set by middle management. Compared with strategic plans, tactical
plans have a more specific and concrete focus. Thus tactical plans are concerned more with actually
getting things done than deciding what to do.

15.5 OPERATIONAL PLANNING

Operational planning focuses on the smooth running of the enterprise’s day –to-day activities.
Operational planning is the most detailed level of planning
Operational plan are derived from tactical plans and are aimed at achieving operational goals.
Operational plans tend to be narrowly focused, have relatively short time horizons, and involve
lower level managers.

15.6 THE PLANNING PROCESS

1. Establishment of objectives
a. Planning requires a systematic approach. It starts with the setting of goals and
objectives to be achieved.
b. Objectives provide a rationale for undertaking various activities. They indicate
direction of efforts. They focus a manager’s attention on the end results to be
achieved.
c. Objectives should be stated in a clear, precise and unambiguous language.
d. As far as possible, objectives should be stated in quantitative terms. For example,
the number of men working, wages given, units produced, etc. Some goals should
be specified in qualitative terms if they cannot be quantified.
e. Objectives should be practical, acceptable, workable and achievable.
2. Establishment of Planning Premises
a. Planning premises are the assumptions about the lively shape of events in future. It
is the assumptions about the environment in which the organizational plans are to
be implemented
b. They serve as a basis for planning.

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 c. It is concerned with determining where one tends to deviate from the actual plans
and causes of such deviations.
d. It is about finding out what obstacles are there. It is also concerned with taking steps
that avoids these obstacles to a great extent.
e. Planning premises may be internal or external. Internal includes capital investment
policy, management, labour relations, philosophy of management, etc. Whereas
external includes socio- economic, political and economic changes.
3. Choosing an alternative course of action
a. A number of alternative course of actions have to be considered.
b. For this purpose, each and every alternative will be evaluated by weighing its pros
and cons in the light of resources available and requirements of the organisation.
c. The merits, demerits as well as the consequences of each alternative must be
examined before the choice is being made.
d. After objective and scientific evaluation, the best alternative is chosen.
4. Formulation of derivative plans
a. Derivative plans are the sub plans or secondary plans which help in the achievement
of main plan.
b. Secondary plans will flow from the basic plan. These are meant to support and
expedite the achievement of basic plans.
c. These detail plans include policies, procedures, rules, programs, budgets,
schedules, etc. For example, if profit maximization is the main aim of the enterprise,
derivative plans will include sales maximization, production maximization, and
cost minimization.
d. Derivative plans indicate time schedule and sequence of accomplishing various
tasks.
5. Numbering Plans by Budgeting: The next step is to convert the plan into budgets. Each
plan can have its own budget. Budgeting is important standard against which planning can
be measured.
6. Securing Co-operation
a. After the plans have been determined, it is necessary rather advisable to take
subordinates or those who have to implement these plans into confidence.

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 b. The purposes behind taking them into confidence are:-
i. Subordinates may feel motivated since they are involved in decision making
process and will be interested in the execution of the plan.
ii. The organization may be able to get valuable suggestions and improvement in
formulation as well as implementation of plans.
7. Follow up/Appraisal of plans
a. After choosing a particular course of action, it is put into action.
b. After the selected plan is implemented, it is important to appraise its effectiveness.
c. This is done on the basis of feedback or information received from departments or
persons concerned.
d. This enables the management to correct deviations or modify the plan.
e. The follow up must go side by side the implementation of plans so that in the light
of observations made, future plans can be made more realistic.

15.7 DECISION MAKING

In this section we introduce you to decision making. You will discover that decision making is at
the core of managing an enterprise. As a manager for an enterprise, decision making is very much
part of your day-to-ay activity.

WHAT IS DECISION MAKING?

Decision making is part of planning. It is the act of choosing one alternative from among a set of
alternatives. The decision making process includes recognizing and defining the nature of a
decision situation, identifying alternatives, choosing the best alternative, and putting it into
practice. Thus, the person making the decision must both recognize that a decision is necessary
and must identify a set of feasible alternatives before selecting one.
Decision making may also be defined as a process by which managers respond to opportunities
and threats that confront them by analyzing the options and make determinations about specific
organizational goals and courses of action.

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A good decision results in the selection of appropriate goals and courses of action that increases
an enterprise’s performance.

15.8 STEPS IN DECISION MAKING

Any manager who may wish to approach a decision rationally and logically, should try to follow
the steps given below. These steps can help to keep the decision maker focused on facts and logic.
They are altogether six steps that managers should follow to make a good decision.
Step 1. Recognize the need for a decision– the first step is to recognize the need for a decision.
Decision making begins with defining a problem or a situation that will require a decision to be
made. The situation may be positive or negative. Managers must respond in a timely and
appropriate manner.
Step 2. Identify alternatives– the manager must generate alternatives a set of feasible alternative
courses of action to take. In general, the more important a decision, the more alternatives should
be generated.
Step 3. Assess alternatives – Each alternative is evaluated to determine its feasibility, its
satisfactoriness, and its consequences.
Step 4. Select the Best alternative - consider all situational factors and choose the alternative
that best fits the manager’s situation.
Step 5. Implement the chosen alternative – the chosen alternative is implemented into the
organizational system.
Step 6. Follow up and evaluate the results – At some time in future, the manager should
ascertain the extent to which the chosen alternative has worked. He or she should learn from the
feedback and develop guidelines that will help in future decision making.

15.9 ORGANIZING
Organizing is one of the principal management functions. Thus, to manage an enterprise, a
manager will be required to organize people and other resources necessary to carry out the plans
and goals of the enterprise. He or she will have to determine how resources and activities are to be
grouped.
Organizing is simply the process by which managers establish or decide how best to group
organizational activities and resources.

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BASIC ELEMENTS OF ORGANIZING

Discussed below are the basic elements of organizing.

ORGANIZING BY DEPARTMENT (GROUPING JOBS)

One way of organizing is by grouping of jobs according to some logical arrangement. This process
of grouping jobs is known as departmentalization.

a). Functional Departmentalization - the most common base for departmentalization is by

function. Functional departmentalization groups together those jobs involving the same or similar
activities. This will, for instance, result into several functional departments such as Finance,
Marketing, Human Resources, Operations, etc. Functional departmentalization is common,
especially, among smaller organizations.

There are three major advantages of this approach. First, each department can be staffed by experts
in that functional area. Thus for instance, Finance experts can be employed to run the Finance
department. Second, supervision is facilitated because an individual manager needs to be familiar
with only a relatively narrow set of skills. And, third, coordinating activities inside each
department is easier.

The major disadvantages of this approach are: (a) decision making tends to become slower and
more bureaucratic as the organization begins to grow in size, (b) Employees may also begin to
concentrate too narrowly on their own unit and lose sight of the total organizational system, and
(c) accountability and performance become increasingly difficult to monitor.

b). Product departmentalization – a second common approach involves grouping and arranging
activities around products or product groups. Most larger organizations adopt this form of
departmentalization for grouping activities.

Product departmentalization has three major advantages. First, all activities associated with one
product or product group can be easily integrated and coordinated. Second, the speed and
effectiveness of decision making are enhanced. Third, the performance of individual products or

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product groups can be assessed more easily and objectively, thereby improving the accountability
of departments for the results of their activities.

Product departmentalization has two major disadvantages. The first one is that, managers in each
department may focus on their own products to the exclusion of the rest of the organization. The
second disadvantage is that; administrative costs will rise because each department must have its
own specialists.

c). Customer Departmentalization– Under this approach, the organization structures its
activities to respond to and interact with specific customers or customer groups.

The basic advantage of this approach is that the organization is able to use skilled specialists to
deal with unique customers or customer groups
d).GeographicLocation Departmentalization – This approach groups jobs on the basis of
defined geographical sites or areas. The defined sites or areas may range in size from a
hemisphere to a city, town or a small locality. The primary advantage of location
departmentalization is that it enables the organization to respond easily to unique customer and
environmental characteristics in various regions. On the negative side, a large administrative
staff may be required.

ORGANIZING BY RESPONSIBILITY (ESTABLISHING REPORTING

RELATIONSHIPS)

The second basic element of organizing is the establishment of reporting relationships among
positions. The purpose of this activity is to clarify the chain of command and the span of
management.

a). Chain of Command – This means a clear and distinct line of authority among the positions
in an organization. The chain of command actually, has two components. The first, called unity
of command, suggests that each person within an organization must have a clear reporting
relationship to one and only one boss. The second, called the scalar principle, suggests that there
must be a clear and unbroken line of authority that extends from lowest to the highest position in

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the organization. Thus someone in the organization must ultimately be responsible for every
decision.
b). Span of management – another part of establishing reporting relationships is determining how
many people will report to each manager. This defines the span of management (sometimes called
the span of control). There is no universally accepted number of how many people should report
to a manager.
c). Tall versus flat organizations – managers are now focusing their attention on the optimal
number of layers in their organizational hierarchy. Having more layers results in a taller
organization, whereas having fewer layers leads to a flatter organization.
The advantages of a flat structure are that it can lead to a higher levels of morale and productivity
among employees. Its disadvantages are that a wide span of management in flat organizations may
result in a manager having more administrative responsibility because there are fewer managers,
and more supervisory responsibility because there are more subordinates reporting to each
manager.
On its part, a tall structure’s advantage is that the small span of management at each level allows
a manager to exercise greater direct control. However, one of Its major disadvantages is that it is
more expensive because of a large number of managers involved. Another disadvantage is that it
fosters more communication problems because of the increased number of people through whom
information must pass.

DISTRIBUTING AUTHORITY
The third important element of organizing is determining how authority is to be distributed among
positions. Authority is power that has been legitimized by the organization. Two specific issues
that managers must address when distributing authority are delegation and decentralization.

1). The Delegation Process – Delegation is the establishment of a pattern of authority between a
superior and one or more subordinates. Specifically, delegation is the process by which managers
assign a portion of their total workload to others.

The delegation process involves three steps. First, the manager assigns responsibility or gives the
subordinate a job to do. Second, the manager gives the subordinate the power (for instance, the
power to lead a group of other workers. The third step is that the manager establishes the

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subordinate’s accountability- that is, the subordinate accepts an obligation to carry out the task
assigned by the manager.

2). Decentralization and Centralization - is the process of systematically delegating power and
authority throughout the organization to middle and lower level managers. A decentralized
organization is one in which decision making, power and authority are delegated as far down the
chain of command as possible.

Some organizations may instead choose to centralize power and authority. Centralization is the
process of systematically retaining power and authority in the hands of higher level managers. In
a centralized organization, decision making, power and authority are retained at the higher levels
of management.

Of the two continuums, organizations that choose to follow decentralization tend to be more
successful.

15.10 COORDINATING ACTIVITIES

The fourth major element of organizing is coordination. This is the process of linking the activities
of the various departments of the organization.
i). The need for coordination – The primary reason for coordination is that departments and work
groups are interdependent. They depend on one another for information and resources to perform
their respective activities. The greater the interdependence between departments, the more
coordination the organization requires if departments are to be able to perform effectively.
ii). Structural Coordination Techniques – There are many techniques for coordinating. Some
of the most useful devices for maintaining coordination among interdependent units are the
managerial hierarchy, rules and procedures, liaison roles, task forces and integrating departments.
Organizations that use hierarchy to achieve coordination place one manager to be in charge of
interdependent departments or units.
Routine coordination activities can be handled via rules and standard procedures.
Another way is to use a manager in a liaison role to coordinate interdependent units by acting as a
common point of contact. He or she may not have formal authority over the groups but instead
simply facilitates the flow of information between units.

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A task force may be created when the need for coordinating is acute. When the interdependence is
complex and several units are involved, a task force may be assembled by drawing one
representative from each group. When the project is completed, task force members return to their
original positions.
Integrating departments are occasionally used for coordination. They are similar to task forces but
are more permanent. An integrating department generally has some permanent members as well
as members who are assigned temporally from units that are particularly in need of coordination.

15.11 CONTROLLING
Once again, we introduce you to the concept of controlling. It is one of the key elements in the
management of an enterprise.
Controlling is the monitoring of the progress of the enterprise as it works towards its goals so as
to ensure that it is effectively and efficiently achieving its goals. It involves checking to see if plans
are being realized.
In other words, controlling is the regulation of an enterprise’s activities so that some targeted
elements remain within acceptable limits. Without this regulation, an enterprise will not know how
well it is performing in relation to its goals.

THE PURPOSE OF CONTROL

There are four functions of control as indicated below:
i) To help an enterprise adapt to environmental changes.
ii) To help an enterprise limit the accumulation of error
iii) To help an enterprise cope with organizational complexity.
iv) To help an enterprise minimize costs.

THE CONTROL PROCESS

Regardless of the type of an organization, there are four fundamental steps in any control process.
a). Establishing Standards (Setting Standards)
The first step in the control process is establishing standards. A control standard is a target against
which subsequent performance will be compared. Standards established for control purposes
should be expressed in measurable terms. They should also be consistent with the organization’s
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goals. A final aspect of establishing standards is to identify performance indicators. Performance
indicators are measures of performance that provide information that is directly relevant to what
is being controlled.
b). Measuring Performance
The second step in the control process is measuring performance. For control to be effective,
performance measures must be valid. Production performance may be expressed in terms of unit
cost, production quality, or volume produced. Employee performance is often measured in terms
of quality or quantity of output.
c). Comparing Performance Against Standards
The third step in the control process is comparing measured performance against established
standards. Comparing performance against standards will result in one of the three outcomes: a)
performance that is higher, b) lower, or c) identical (even) with the standard.
d). Considering Corrective Action

The final step in the control process is determining the need for corrective action. After comparing
performance against control standards, one of the three actions is appropriate: a) maintain the status
quo (do nothing), b) correct the deviation, or c) change the standards.

Maintaining the status quo is preferable when performance essentially matches the standards.

When performance has deviated from the standards some action will be needed to correct the
deviation.

Changing the established standards usually is necessary if it was set too high or too low at the
outset

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UNIT 16
16.0 LEGAL RESPONSIBILITIES AND INSURANCE

OBJECTIVES
By the end of this unit, you should be able to:

• State various legal responsibilities associated with running an enterprise.

• Discuss different types of insurance schemes that may be used by an enterprise.

16.1 LEGAL RESPONSIBILITIES

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The word legal refers to anything having to do with the law. In Zambia, the legal system is the
combination of laws, processes, and people that go together to protect our rights and safety. Elected
officials, judges, the courts, lawyers, and police officers are all part of the legal system.

When running an enterprise, ensure that you observe the following legal requirements:

REGISTRATION AND CERTIFICATE OF INCORPORATION

One of your legal obligations before you start operating is to first ensure that you register your
firm. Registration will enable you to get a certificate of incorporation.

In Zambia, companies are formed by registration under the Companies Act Chapter 388 of 2006
of the Laws of Zambia. Thus a company is formed by the issuance of a certificate of incorporation
by the Registrar of Companies. The certificate identifies the company by name and serial number.

PAYING TAXES

Another legal obligation of any business firm is to ensure that the firm pays its fair share of taxes.
There are many different types of taxes that a business firm and its employees are expected to pay.
Some of these are, property taxes (taxes levied on the value of property), corporation taxes (levied
on all corporations), presumptive taxes (taxes paid by people in the informal sector, e.g.
marketeers, minibus, and taxi drivers), etc.

All governments in the world have a tax system. This is because it costs money to run a
government, and the tax system is the government’s way of obtaining this money.

To help in the collection of Taxes, the Zambian government established the Zambia Revenue
Authority to undertake this task.

Price Discrimination: A business firm should guard against engaging in price discrimination.
This is a legal requirement that every businesses entity should observe.

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Price discrimination occurs when a seller charges different buyers’ different prices for the same
product, and when the price differences are not related to cost differences.

The Environmental Council of Zambiaregulates business firms as to the amount of pollution

they can emit into the air or rivers. As a manager of an enterprise, you must know the limits of
how much you can legally emit in the environment.

The National Pension Scheme Authority (NAPSA) ACT N0. 40 of 1996of the laws of Zambia
requires every employer who are runs an enterprise to pay to NAPSA in respect of his or her
employees. The NAPSA Scheme consists of an employer’s contribution and an employee’s
contribution. A contributing employer shall pay contributions to NAPSA each month.

The Industrial and Labour Relations Act N0. 27 of 1993 of the laws of Zambia states that every
employee shall as between himself and his employer, have the following rights:

- The right to take part in the formation of a trade union.

- He right to be a member of any trade union of his choice

No employer, or any person acting on his behalf shall prevent, dismiss, penalize or discriminate
against or deter an employee from exercising these rights confirmed on him by sub section (1).

TheMinimum Wages and Conditions of Employment Act(Laws Volume 15 Cap 276)

Statutory Instrument N0. 7 of 2006of the law of Zambia outlines the required minimum wages
that employers should pay their least paid employees. Usually people who are engaged as a general
worker, cleaner, handyman, an office orderly, or a watchman are the least paid.

As an employer running an enterprise it is your responsibility to find out the minimum wages
before you engage people as employees.

The Factories Act (CAP 441) OF 2006 0f the laws of Zambia states that this act is intended to
make further and better provision for the regulation of conditions of employment in factories and
other places as regards the safety, health and welfare of persons employed therein, to provide for
the safety, examination and inspection of certain plant and machinery, and provide for purposes
incidental to or connected with the matters aforesaid.

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 - The act requires firms to provide protective clothing and appliances to their
employees.
- It requires all employers to provide a safe working environment.

TheWorkers’ CompensationAct N0. 10 OF 1999 of the laws of Zambia was created to provide
for the establishment and administration of a Fund for the compensation of workers disabled by
accidents occurring, or diseases contracted in the course of employment, and to provide for the
payment of compensation to dependents of workers who die as a result of accidents or diseases.
Employers are required, by the law, to make payments to the Fund on behalf of their employees.

16.2 BUSINESS INSURANCE

Business insurance protects against losses in four major risk areas. These are loss of property,
liability losses, loss of earning power, and loss due to dishonesty or nonperformance.

LOSS OF PROPERTY
There are many forms of insurance available to protect against property losses. The two most
common are fire and marine insurance.

Fire Insurance policies can be used to cover loss or destruction of an enterprise’s buildings,
fixtures, machinery, equipment, or other property resulting from fire.

Marine insurance policy can be used to cover the loss of goods that are being transported by
water. Marine insurance may be in form of ocean marine insurance or inland marine insurance.

Burglary and robbery insurance: this protects against losses due to theft of money, merchandise,
and other business items.

Vehicle insurance: protects against loss in the event of theft or property damage to cars, trucks
or other vehicles. It also protects against personal injury to the driver or passengers

LOSS OF EARNING POWER

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Business interruption insurance: This is the type of insurance that compensates a business for
loss of income during the time repairs are being done to a building or property after a natural
disaster.

LOSS DUE TO DISHONESTY OR NON PERFORMANCE

Fidelity Bonds: These protect a business from employee dishonesty. Usually, businesses require
employees who handle money to be bonded. If a bonded employee steals the money, the bonding
company pays the loss. This is to reimburse the enterprise for the losses.

Performance Bonds: These are also called surety bonds. They insure against losses that might
occur when work or a contract is not finished on time as agreed. For example, a building contract
might be required to purchase a performance bond to guarantee completion of the job on time and
according to specification. The company that issues the performance bond is responsible for
damages if the contract is not completed.

LIABILITY
Product liability insurance: protects against business loss resulting from personal injury from
defective products manufactured or sold by a business.

UNIT 17

17.0 ENTREPRENEURSHIP EDUCATION?

This chapter starts with a discussion on the different terms used for describing entrepreneurship in
education. Then various definitions are outlined and discussed. Value creation is presented as a
commonality uniting different views in the field. Entrepreneurial competencies are discussed and
exemplified through some competencies often termed as entrepreneurial. Based on these different
terms and concepts, connections to general education are made by contrasting different

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pedagogical approaches and discussions. Some theoretical roots to entrepreneurship in education
are given and briefly discussed.

17.1 Terminology of entrepreneurship in education

The two most frequent terms used in this field are enterprise education and entrepreneurship
education. The term enterprise education is primarily used in United Kingdom, and has been
defined as focusing more broadly on personal development, mindset, skills and abilities, whereas
the term entrepreneurship education has been defined to focus more on the specific context of
setting up a venture and becoming self-employed (QAA, 2012, Mahieu, 2006). In United States,
the only term used is entrepreneurship education (Erkkilä, 2000). Some researchers use the longer
term enterprise and entrepreneurship education.

Wide and narrow views on entrepreneurship

Being entrepreneurial can mean many things to many people. A common conception according to
Gartner (1990) is that entrepreneurship is about entrepreneurial individuals creating innovative
organizations that grow and create value, either for the purpose of profit or not. But
entrepreneurship does not have to include the creation of new organizations, it can also occur in
existing organizations (Shane and Venkataraman, 2007). It is not only limited to the
entrepreneurial individual, but also to entrepreneurial opportunities and the relation between the
individual and the opportunity, i.e. the individual-opportunity nexus as described by Shane (2003).
Stevenson and Jarillo (1990) define entrepreneurship as “a process by which individuals - either
on their own or inside organizations - pursue opportunities without regard to the resources they
currently control” (p.23). Bruyat and Julien (2001) use a constructivist approach and propose a
definition incorporating not only the entrepreneur, but also the new value created, the environment
within which it takes place, the entrepreneurial process itself and the links between these constructs
over time. They also propose the terms “individual” and “entrepreneur” to represent teams
whenever applicable.

17.2 Educating about, for and through entrepreneurship

Entrepreneurial education is often categorized into three approaches, see figure 1 (Johnson, 1988,
Heinonen and Hytti, 2010, O'Connor, 2013). Teaching “about” entrepreneurship means a content-

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laden and theoretical approach aiming to give a general understanding of the phenomenon. It is
the most common approach in higher education institutions (Mwasalwiba, 2010). Teaching “for”
entrepreneurship means an occupationally oriented approach aiming at giving budding
entrepreneurs the requisite knowledge and skills. Teaching “through” means a process based and
often experiential approach where students go through an actual entrepreneurial learning process
(Kyrö, 2005). This approach often leans on the wider definition of entrepreneurship, and can be
integrated into other subjects in general education, connecting entrepreneurial characteristics,
processes and experiences to the core subject. While the “about” and “for” approaches are relevant
primarily to a subset of students on secondary and higher levels of education, the embedded
approach of teaching “through” entrepreneurship can be relevant to all students and on all levels
of education (See for example Smith et al., 2006, Handscombe et al., 2008). Some important
challenges have however been identified when trying to embed entrepreneurship into education
this way, such as resource and time constraints, resistance from teachers, assessment challenges
and cost implications (Smith et al., 2006), see further in chapter 4 below.

17.3 Value creation as the common core of entrepreneurial education

The varying definitions of entrepreneurship and resulting variations in pedagogical approaches
have made it difficult to give teachers firm advice on how to approach entrepreneurial education
(Fayolle and Gailly, 2008). If a useful definition could be agreed upon, the field and the teachers
could benefit significantly. For the purpose of this report, Bruyat and Julien’s (2001) definition
grounded in the concept of value creation is outlined more in detail below and constitutes the basis
of many of the resulting recommendations in this report. This does not mean that it is the only
suitable definition, merely that the author of this report has judged it to be particularly useful for
entrepreneurial education.
Bruyat and Julien (2001) state that studying the entrepreneur (or team) in isolation is inherently
wrong, as it is not solely from the entrepreneur that entrepreneurship occurs. Entrepreneurship is
as much about the change and learning that the individual entrepreneur experiences by interacting
with the environment as the change and value creation the entrepreneur causes through his/her
actions. Learning and value creation are thus seen as two main aspects of entrepreneurship. This
view aligns better with the learning focused aims of educational institutions than many other
definitions of entrepreneurship. It forms the basis of a resulting definition of entrepreneurial

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education leaning on value creation as a main goal for students. Letting students try to create value
to outside stakeholders will then result in development of entrepreneurial competencies.
Alluding to famous educational philosopher John Dewey’s notion of “Learning-by-doing” the
author of this report has proposed to label this a “Learning-by-creating-value” approach grounded
in the field of entrepreneurship (Lackéus et al., 2013). According to this definition of
entrepreneurial education, if a pedagogical intervention lets students learn to create value for other
people (own group and teachers excluded), it is indeed entrepreneurial education. It could be done
by actual value creation for other people as formal part of the curriculum (a preferred teaching
“through” approach), or by learning about how to create value to other people (a less effective
teaching “about” approach).
A definition of entrepreneurial education in line with this has been proposed by Danish Foundation
for Entrepreneurship (Moberg et al., 2012, p.14) as “Content, methods and activities supporting
the creation of knowledge, competencies and experiences that make it possible for students to
initiate and participate in entrepreneurial value creating processes”. This definition of
entrepreneurial education leans on the following underlying definition of entrepreneurship:
“Entrepreneurship is when you act upon opportunities and ideas and transform them into value for
others. The value that is created can be financial, cultural, or social.” (p.14).
Implicit in these definitions is the notion of entrepreneurial value creation, i.e. that the value
created should be novel, but also that it requires some kind of initiative on behalf of the value
creator, that it involves acquisition of resources needed to create the value, that the value creation
process is managed and owned by the initiator of the process (i.e. the student) and that this initiator
also assumes the risk of failure (Shapero and Sokol, 1982, Okpara and Halkias, 2011). Value
creation occurs extensively in society, and is tightly connected to people’s happiness since helping
others results not only in making a living but also in feelings of meaningfulness, participation,
engagement and life satisfaction (Baumeister et al., 2012). Value creation is however seldom
entrepreneurial. Two main categories of value creation are routine value creation and explorative
value creation (O'Reilly and Tushman, 2013). Routine value creation is based on operational
competencies such as process management and execution, optimization and incremental
improvements. Explorative value creation is based on entrepreneurial competencies, see further in
next section. Finding a balance between these two forms of value creation is important for society
but difficult to achieve. Routine value creation is often emphasized due to its greater certainty of

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short-term success. As a solution to the resulting lack of explorative value creation, researchers
have advocated separating structures between routine value creation and explorative value
creation, i.e. forming ambidextrous organizations (O'Reilly and Tushman, 2004).

Table 1. Value creation examples. How different stakeholders in society are creating value for
others
Stakeholder Creates value How value for F/S/C type R/E type
for others is
created
Established Customers, By offering Financial value Routine
business employees and commercial
shareholders services and
products
Business Customers, By offering Financial value Explorative
entrepreneur employees and novel
shareholders commercial
services and
products
Social Society and By offering Financial, social Explorative
entrepreneur individuals in novel social and cultural
need services and value
products
Welfare state Citizens of the By offering Financial, social Routine
state welfare services and cultural
value
Family member Other family By always being Social value Routine
members there

Pet Other family By always being Social value Routine

members there

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 Artist Other By entertaining, Cultural value Routine /
individuals provoking and explorative
triggering new
thoughts
Student Future By preparing for Financial, social Routine
employers / work life; by

Two kinds of value creation. Routine value creation is based on operational competencies such
as process management and execution, optimization and incremental improvements. Explorative
value creation is based on entrepreneurial competencies. A balance between them is desirable but
seldom achieved.

17.4 Entrepreneurial competencies

The main goal of most entrepreneurial education is to develop some level of entrepreneurial
competencies. Table 2 contains a framework outlining some competencies often deemed to be
entrepreneurial. Entrepreneurial competencies are defined here as knowledge, skills and attitudes
that affect the willingness and ability to perform the entrepreneurial job of new value creation.
This definition aligns with much of the literature on competencies in general as well as on
entrepreneurial competencies (See for example Sánchez, 2011, Burgoyne, 1989, Kraiger et al.,

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1993, Fisher et al., 2008). The definition as well as the competencies in Table 2 can be viewed
from a wide as well as a narrow perspective. Marketing skills can for example be necessary for a
start-up in need to market its newly developed products, but also for a student wanting to get
class-mates excited about an entrepreneurial project in order to get them to contribute to its
development.
There are striking similarities between many of the outlined entrepreneurial competencies and
what researchers label “non-cognitive factors”, such as perseverance, self-efficacy, learning
skills and social skills (Farrington et al., 2012). Table 2 outlines a continuum showing that the
top rows represent cognitive competencies, i.e. primarily intellectual capacity based
competencies, and the bottom rows represent typical non-cognitive competencies. Cognitive
competencies are easy to teach and evaluate, whereas non-cognitive competencies require
learning-by-doing and are more difficult to evaluate (Moberg, 2014a). The current educational
policy climate emphasizing high-stakes standardized testing, international large-scale
assessments and institutional ranking has led to a focus on cognitive competencies, neglecting
non-cognitive competencies. This has led to a narrowing of the curriculum, teaching to the tests
and a de-professionalisation of teachers (Hursh, 2007, Amrein and Berliner, 2002, Ball, 2003,
Young and Muller, 2010). The risks with such a neglect of non-cognitive competencies is
increasingly being acknowledged by researchers (Farrington et al., 2012, Morrison Gutman and
Schoon, 2013, Levin, 2013), highlighting the strong research evidence that students’ non-
cognitive competencies significantly impact academic performance and future labor market
outcomes, perhaps even more than cognitive competencies (Moberg, 2014b). See figure 4 for
five general categories of non-cognitive factors, and the reciprocal relationship between
academic mindsets, perseverance, behaviors and performance.

Table 2. Entrepreneurial competencies. Framework outlining some key entrepreneurial

competencies and their relation to cognitive and non-cognitive competencies. Adapted from
(Lackeus, 2014).
Main theme Sub themes Primary source Interpretation used in this
report
Knowledge Mental models (Kraiger et al., Knowledge about how to get
1993) things done without

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 resources, Risk and
probability models.
Declarativ (Kraiger et al., Basics of entrepreneurship, value
e 1993) creation, idea generation,
knowledg opportunities, accounting, finance,
e technology, marketing, risk, etc.
Self- (Kraiger et al., Knowledge of personal fit with
insigh 1993) being an entrepreneur / being
t entrepreneurial.
Skills Marketing skills (Fisher et al., 2008) Conducting market research,
Assessing the marketplace,
Marketing products and
services, Persuasion, Getting
people excited about your
ideas, Dealing with
customers, Communicating
a vision.
Resource skills (Fisher et al., 2008) Creating a business plan, Creating a
financial plan, Obtaining financing,
Securing access to resources
Opportunity skills (Fisher et al., 2008) Recognizing and acting on business
opportunities and other kinds of
opportunities, Product / service /
concept development skills
Interpersonal skills (Fisher et al., 2008) Leadership, Motivating others,
Managing people, Listening,
Resolving conflict, Socializing
Learning skills (Fisher et al., 2008) Active learning, Adapting to new
situations, coping with uncertainty
Strategic skills (Fisher et al., 2008) Setting priorities (goal setting) and
focusing on goals, Defining a

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 vision, Developing a strategy,
Identifying strategic partners
Attitudes Entrepreneurial (Fisher et al., 2008) ”I want”. Need for
passion achievement.

Self-efficacy (Fisher et al., 2008) ”I can”. Belief in one’s ability to

perform certain tasks successfully.
Entrepreneurial identity (Krueger, 2005, ”I am / I value”. Deep beliefs, Role
Krueger, 2007) identity, Values.
Proactiveness (Sánchez, 2011, ”I do”. Action-oriented, Initiator,
Murnieks, 2007) Proactive.
Uncertainty / ambiguity (Sánchez, 2011, ”I dare”. Comfortable with
tolerance Murnieks, 2007) uncertainty and ambiguity,
Adaptable, Open to surprises.
Innovativeness (Krueger, 2005, ”I create”. Novel thoughts / actions,
Murnieks, 2007) Unpredictable, Radical change,
Innovative, Visionary, Creative,
Rule breaker.
Perseverance (Markman et al., ”I overcome”. Ability to overcome
2005, Cotton, 1991) adverse circumstances.

REVISION QUESTIONS
1. How would you describe an entrepreneurial school? (20
Marks).
2. Why should entrepreneurship be made as a compulsory
subject in schools. (20 marks).
3. Write an essay with relevant examples on how you would
integrate entrepreneurship in you subject of specialisation. (20
marks).

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 4. To what extent can entrepreneurship education develop
entrepreneurial intentions in students/pupils? (20 marks).

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