Chapter-4_080125-2.docx

**CHAPTER 4** **IDEAS, OPPORTUNITIES, AND INNOVATIONS** **LEARNING OUTCOME** 1. Differentiate business organization as to its form of ownership. 2. Determine the pros and cons of various business organizations. 3. Distinguish the types and categories of organizations. 4. Demonstration the personal entrepreneurial competencies. In particular, there is confusion about the difference between creativity, innovation and invention. Let us start with some definitions: **CREATIVITY** is the capability or act of conceiving something original or unusual. It is the ability to develop new **ideas** and to discover new ways of looking at problems and **opportunities**. **OPPORTUNITY** is an idea for a new product or service with a market that is willing to pay that product or service so that it can form the basis of a profitable business. **INNOVATION** is the implementation of something new. It is the ability to apply creative solutions to those problems and **opportunities** in order to enhance people\'s lives or to enrich society. **INVENTION** is the creation of something that has never been made before and is recognized as the product of some unique insight. If you have a brainstorm meeting and dream up dozens of new ideas then you have displayed creativity but there is no innovation until something gets implemented. Somebody has to take a risk and deliver something for a creative idea to be turned into an innovation. An invention might be a product or device or method that has never existed before. So every invention is an innovation. But every innovation is not an invention. When your company first published its website that was a major innovation for the company even though many other websites already existed. We tend to think of an innovation as a new product but you can innovate with a new process, method, business model, partnership, route to market or marketing method. Indeed, every aspect of your business operation is a candidate for innovation. Peter Drucker said, 'Every organization must prepare for the abandonment of everything it does.' So do not restrict your vision of innovation to products. Some of the most powerful innovations you can make are in business methods and customer services. If we look at companies like Dell, eBay and Amazon we see that their great innovations were with their business models rather than in new products. Innovations can be incremental or radical. Every improvement that you make in products or services can be seen as an incremental innovation. Most businesses and most managers are good at incremental innovation. They see problems in the current set-up and they fix them. Radical innovations involve finding an entirely new way to do things. As such they are often risky and difficult to implement. **Scanning the Marketing Environment** This is the starting point of any venture that involves understanding and knowing the intricacies (complexities) of the whole environment. Marketing Environment is the combination of external and internal factors and forces which affect the company's ability to establish a relationship and serve its customers. The marketing environment of a business consists of an internal and an external environment. The internal environment is company-specific and includes owners, workers, machines, materials etc. The external environment is further divided into two components: micro & macro. The micro or the task environment is also specific to the business but external. It consists of factors engaged in producing, distributing, and promoting the offering. The macro or the broad environment includes larger societal forces which affect society as a whole. The broad environment is made up of six components: demographic, economic, physical, technological, political-legal, and social-cultural environment. *"A company's marketing environment consists of the actors and forces outside of marketing that affect marketing management ability to build and maintain successful relationships with target customers". -- **Philip Kotler*** **[Components of Marketing Environment]** ----------------------------------------------------- The marketing environment is made up of the internal and external environment of the business. While the internal environment can be controlled, the business has very less or no control over the external environment. - ### **Internal Environment** The internal environment of the business includes all the forces and factors inside the organization which affect its marketing operations. These components can be grouped under the **Five M's of the business**, which are: - - - - - The internal environment is under the control of the marketer and can be changed with the changing external environment. Nevertheless, the internal marketing environment is as important for the business as the external marketing environment. This environment includes the sales department, marketing department, the manufacturing unit, the human resource department, etc. - ### **External Environment** The external environment constitutes factors and forces which are external to the business and on which the marketer has little or no control. The external environment is of two types: #### **Micro Environment** The micro-component of the external environment is also known as the task environment. It comprises of external forces and factors that are directly related to the business. These include suppliers, market intermediaries, customers, partners, competitors and the public - - - - - - #### **Macro Environment** The macro component of the marketing environment is also known as the broad environment. It constitutes the external factors and forces which affect the industry as a whole but don't have a direct effect on the business. The macro-environment can be divided into 6 parts. - ##### **Demographic Environment** The demographic environment is made up of the people who constitute the market. It is characterized as the factual investigation and segregation of the population according to their size, density, location, age, gender, race, and occupation. - ##### **Economic Environment** The economic environment constitutes factors which influence customers' purchasing power and spending patterns. These factors include the GDP, GNP, interest rates, inflation, income distribution, government funding and subsidies, and other major economic variables. - ##### **Physical Environment** The physical environment includes the natural environment in which the business operates. This includes the climatic conditions, environmental change, accessibility to water and raw materials, natural disasters, pollution etc. - ##### **Technological Environment** The technological environment constitutes innovation, research and development in technology, technological alternatives, innovation inducements also technological barriers to smooth operation. Technology is one of the biggest sources of threats and opportunities for the organization and it is very dynamic. - ##### **Political-Legal Environment** The political &Legal environment includes laws and government's policies prevailing in the country. It also includes other pressure groups and agencies which influence or limit the working of the industry and/or the business in the society. - ##### **Social-Cultural Environment** The social-cultural aspect of the macro-environment is made up of the lifestyle, values, culture, prejudice and beliefs of the people. This differs in different regions. **Importance of Marketing Environment** --------------------------------------- Every business, no matter how big or small, operates within the marketing environment. Its present and future existence, profits, [[image]](https://www.feedough.com/brand-image-explanation-examples/), and [[positioning]](https://www.feedough.com/positioning/) depend on its internal and external environment. The business environment is one of the most dynamic aspects of the business. In order to operate and stay in the market for long, one has to understand and analyze the marketing environment and its components properly. ### Essential for planning An understanding of the external and internal environment is essential for planning for the future. A marketer needs to be fully aware of the current scenario, dynamism, and future predictions of the marketing environment if he wants his plans to succeed. ### **Understanding Customers** Thorough knowledge of the marketing environment helps marketers acknowledge and predict what the customer actually wants. In-depth analysis of the marketing environment reduces (and even removes) the noise between the marketer and customers and helps the marketer to understand [[consumer behaviour]](https://www.feedough.com/what-is-consumer-behaviour-ultimate-guide/) better. ### ### **Tapping Trends** Breaking into new markets and capitalizing on new trends requires a lot of insight about the marketing environment. The marketer needs to research about every aspect of the environment to create a foolproof plan. ### **Threats and Opportunities** Sound knowledge of the market environment often gives a [[first-mover advantage]](https://www.feedough.com/is-first-movers-advantage-real/) to the marketer as he makes sure that his business is safe from future threats and taps the future opportunities. ### ### **Understanding the Competitors** Every niche has different players fighting for the same spot. A better understanding of the marketing environment allows the marketer to understand more about the competitions and about what advantages do the competitors have over his business and vice versa. **GENERAL RULE:** **[3S of Opportunity Spotting]** This is the framework that most of the promising entrepreneurs use to finally come with the ultimate product or service suited for the specific opportunity. It is the entrepreneur's business idea that can potentially become a commercial product or service in the future. **S1 SEEKING THE OPPORTUNITY** **Opportunity** is the first step and is the most difficult process of all due to the number of options that the entrepreneurs will have to choose from. It involves the development of new ideas from various sources as follows: 1. Changes in the environment 2\. technological discovery and advancement 3\. Government thrust, programs, and policies 4\. People's interests 5\. past experiences **A. EXTERNAL/MACRO-ENVIRONMENT-** involves the larger societal forces that influence the micro-environment **a. PESTEL** -- political, economic, socio-cultural, technological, ecological, legal **a.1 Political factors** are usually induced by government policies and administrations, which can have a strong effect in the entrepreneur's business. **a.2 Economic factors** are factors which are primarily caused by changes or movements in the Phil. Economy that have direct or indirect effects on the entrepreneurial business. **a.3 Socio-cultural factors** represent the general view of the locality's traditions, customs, beliefs, norms, and perceptions. **a.4 Technological factors** basically refer to the trends and developments in computer and information technology that have an impact on the business. **b. Industry environment** -- government, suppliers, customers, competitors, employees, creditors **b.1 Government** -refers to system or institution that handles the affairs of the country. \***Types/Classification of Government** \*Democracy \*Autocracy \*Republic \*Monarchy \*Dictatorship **b.2 Suppliers-** refer to individual persons or companies that provide the required materials, parts or services of the business. \***Criteria of Selecting Suppliers** 1\. quality of good and services 2\. terms of payment 3\. stability 4\. ability to respond to urgent need 5\. proximity of the location **b.3 Customers-** are the buyers of good and services produced or tendered by the business. It must constantly evaluate and study the behavior, tastes, preferences, inclinations and even future activities of the customers. **b.4 Competitors**- are the forces existing in the industry environment that produce, sell or render products or services which are similar to those of the business. - - **b.5 Employees**- are the workers of the business who highly responsible for the production of goods and services to the customers. They help ensure the quality and quantity of the products or services provided to customers. They are the backbone of the business. **B*.* Internal / Microenvironment** refers to the environment within the business. - - **b. Business Culture**- is a collection of values, beliefs, principles, and expectations learned and shared by employees, founders, stakeholders, and members of the management. **TYPES OF CULTURES OPERATING IN THE INTERNAL ENVIRONMENT**: **METHODS OF GENERATING IDEAS** 1. **Focused-Group Discussion (FGD**) is conducted by an entrepreneur with the assistance of a moderator to gather the views of selected consumers on certain issues related to their buying behavior. 2. **Brainstorming** is an activity similar to an FGD, that allows the participants to share creative ideas using the following rules: (a) no destructive criticism or judgement is allowed; (b) wider ideas are accepted; (c) more ideas are preferred; and (d) improvement of others' ideas is allowed. In short, brainstorming is a fun discussion with lenient rules. 3. **Brainwriting or Internet brainstorming** is exactly the same as brainstorming except that the channel used is not face-to-face, but in writing or online. 4. **Problem inventory analysis** is similar to the FGD except that the participants are already given an inventory of product or service problems. Participants will just identify from the list given the compelling problem(s) of a potential product or service instead of generating the ideas from them. **S2: SCREENING THE OPPORTUNITY** **Opportunity Screening** is the process of cautiously selecting the best opportunity. The selection will depend on the entrepreneur's internal intent and the external intent which will address the compelling needs of the target market. **Risk Appetite** refers to the entrepreneur's tolerance of business risks. The crafting of a business plan starts only when entrepreneurs already said no to many opportunities and said yes to one forceful opportunity, to which they will devote their time and resources. The entrepreneur should say no to an opportunity if it does not contain any of these business opportunity elements: **OPPORTUNITY SCREENING MATRIX (OSM)** aims to assist entrepreneur concretize the evidence that the chosen opportunity (or opportunities) is well worth pursuing. The **12 Rs of Opportunity Screening** **S3: SEIZING THE OPPORTUNITY** **Opportunity Seizing** is the last step in opportunity spotting and assessment. It is the "pushing through" with the chosen opportunity. **Innovation** is s the process of positively improving an existing product or service. It is a key driver for economic growth. **Three (3) types of Innovations according to the degree of distinctiveness**: 1. **Breakthrough innovation** may also include inventions, occur infrequently as these establish the platform on which future innovations in an area are developed. It must be protected by patent, a trade secret, or a copyright. Examples: Internet, computer, or airplane 2. **Technological innovation** occurs more frequently than breakthrough innovations. They are technological advancements of an existing product or service. These innovations need to be protected too. Examples: wireless fidelity or Wi-Fi, laptop, and jet airplane. 3. **Ordinary innovations** occur ordinarily as the name implies. They are commonly originating from market analysis and technology pull instead of a technology push. This means that the market has a strong influence in the implementation of an innovation. Examples: unlimited Internet plans of telecommunications companies, a wireless mouse, and airbus for economical travelers. **Four (4) stages:** 1. **Idea stage** -- in this stage, the entrepreneur determines what are the feasible products and/or services that will perfectly suit the opportunity. 2. **Concept stage** -- the developed idea will undergo a consumer acceptance test. This test includes getting the initial reactions of the primary target market and the distribution channel. 3. **Product development stage** -- in this stage, the entrepreneur leverages on the information generated from the prospective customers via the concept stage. 4. **Test marketing stage** -- this stage validates the work done from the first three stages to measure success in the commercialization of the product or service. Once the 3S of opportunity spotting and assessment have been diligently done, the entrepreneur should now be **ready to prepare a comprehensive business plan that covers marketing, operations, and financial plan.** **INNOVATION** **[Innovation]** is the implementation of new ideas at the individual, group or organizational level. A **proces**s of **intentional change** made to **create value** by **meeting opportunity** and **seeking advantage**. **Process**: Innovation is a process (implying, among other things, that it can be learned and managed). **Intentional**: That process is carried out on purpose. **Change**: It results in some kind of change. **Value**: The whole point of the change is to create value in our economy, society and/or individual lives. **Opportunit**y: Entrepreneurial individuals enable tomorrow\'s value creation by exploring for it today: having ideas, turning ideas into marketable insights and seeking ways to meet opportunities. **Advantage**: At the same time, they also create value by exploiting the opportunities they have at hand. **TYPES OF INNOVATIONS** **Four distinct types of innovation**: 1. **Invention -** described as the creation of a new product, service or process. Something that has not been tried before. 2. **Extension -** The expansion of an existing product, service or process. This would mean that the entrepreneur takes an existing idea and applies it differently. 3. **Duplication -** Copying (replicating) an existing product or service and then adding the entrepreneurs own creative touch. In order to improve it. 4. **Synthesis -** A combination of more than one existing products or services into a new product or service. This means that several different ideas are combined in to one new product or service. **THE INNOVATION PROCESS** **1. Analytical planning --** Carefully identifying the product or service features, design as well as the resources that will be needed. **2. Resource organization --** Obtaining the required resources, materials, technology, human or capital resources. **3. Implementation --** Applying the resources in order to accomplish the plans **4. Commercial application --** The provision of value to customers, reward employees, and satisfy the stake holders. CREATIVITY- is thinking new things, and innovation is doing new things. It is the ability to develop new ideas and to discover new ways of looking at problems and opportunities. INNOVATION- is the ability to apply creative solutions to those problems and opportunities in order to enhance people's lives or to enrich society. **Entrepreneurship = creativity + innovation** **Assessment** I. MODIFIED TRUE OR FALSE. Write **T** if the statement is **true**; if **False, Change** the underlined word or phrase to make the statement correct. II. **Multiple Choice.** Select the best answer from the choices. Encircle the letter of your choice. 1. It is the ability to develop new ideas and to discover new ways of looking at problems and opportunities. a. Innovation c. invention b. Creativity 2. The ability to apply creative solutions to the problems and opportunities in order to enhance people's lives or enrich society. a. Creativity c. invention b. Innovation 3. An innovation where the required resources, materials, technology, human and capital resources are obtained. a. Analytical planning c. resource organization b. Commercial application 4. It is the replicating of an existing product or service and then adding the entrepreneur's own creative touch in order to improve. a. synthesis c. extension b. duplication 5. It is the stage in the service planning and development process which validate the work done to measure success in the commercialization of the product or service. a. Concept stage c. test marketing stage b. Product development stage 6. It is the "pushing through" with the chosen opportunity. a. Opportunity seizing c. screening opportunity b. Seeking opportunity 7. It is the process of cautiously selecting the best opportunity. 8\. It refers to the entrepreneur's tolerance of business risks. a\. risk appetite c. opportunity seeking b\. stress tolerance 9\. This refers to the collection of values, beliefs, principles and expectations learned and shared by employees, stakeholders, and members of the management. a\. business resources c. business culture b\. business structure 10\. A method of generating ideas that allows the participants to have creative ideas using rules. a\. focused-group discussion c. brainwriting b\. brainstorming 11\. It is the degree by which all units across the business accept and share a common culture. a\. cultural acceptance c. culture of business b. cultural integration 12\. It is the most difficult process in opportunity spotting due to the number of options the entrepreneur will have to choose from. a\. seeking opportunity c. seizing opportunity b\. screening opportunity 13\. It is the starting point of any venture that involves understanding and knowing the complexities of the whole environment. a\. marketing environment scanning b\. environment scanning c\. opportunity scanning 14\. It is an innovation that involve finding an entirely new way to do things. a\. radical innovation c. ordinary innovation b. incremental innovation 15\. It is a component of marketing environment which includes forces inside the organization which affects its marketing operations. a\. internal environment c. macro-environment b\. external environment III. Differentiate (nos. 1-4; 2 pts each/ no. 5; 4 pts; a total of 10 pts) 1. Creativity 2. Business idea 3. Opportunity 4. Invention 5. Macro vs micro-environment

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