GEC-E1 The Entrepreneurial Mind Final Module PDF

Amando Cope College Baranghawon, Tabaco City Modules for GEC E1 The Entrepreneurial Mind (Final Coverage) FEDERICO B. ENGAY, MBA -...

Amando Cope College Baranghawon, Tabaco City Modules for GEC E1 The Entrepreneurial Mind (Final Coverage) FEDERICO B. ENGAY, MBA - Instructor Introduction The creation of goods and services appear to favor the big business. They have adequate funds, machines, materials, modern technology and management specialists to produce goods and services at a lower average cost. Examples are the multi-national corporations which dominate the global markets. However, there are some market situation where a small or even micro business has the comparative advantage in the production of goods and services. For instance, in the field of cottage industries, like toy making, basket weaving or in personalized services, the big businesses are at a disadvantage. In the rural areas of Japan, most cottage industries are being done in the houses of farmers and fishermen. In the past, U.S. giant car manufacturers made huge profits in producing big cars. The American did not like small cars produced by Japan and some European countries. But in the mid-1970s, the situation changed in favor of the small cars. Thus, the American started importing Japanese and European cars. At that time, there was an oil crisis and gasoline price became very high. These plus the much lower prices of Japanese cars have forced the Americans to change their car preference. The lesson here is that producers should always consider the economic environment and other forces affecting the demand for goods and services. Objectives At the end of the module, students are expected to learn the following: 1. Production of Goods and Services; 2. The Nature of Production; 3. Factors of Production; 4. Costs of Production; 5. Relevant Technology; 6. Produce or Purchase; 7. How to Purchase; 8. Inventory Control; 9. Scheduling; 10. Quality control and 11. Productivity. The Nature of Production Production is the creation of goods and services. Or, it is the creation of utility. Utility means satisfaction.  2 Goods and services are produced to satisfy human wants or needs. Others define production as the process of converting resources into goods or services. In transforming resources into products, the principal actor is the entrepreneur. He decides the proper combination of resources, such as the application of more labor and less machine, or the reverse. He also decides what to produce, how to produce, when to produce and where to produce. Obviously, the ultimate consideration in such management decision is profit. And this is only attainable if buyers are satisfied with the goods and services for sale. Producing a product or service which is new in the market comes from an idea. Then the idea is planned and developed into a product or service. For true entrepreneurs, this is not difficult because they are creative or innovative. In the case of giant business enterprises, they have R and D (research and development) departments. Their job is to create new products or innovate existing products. Factors of Production In economics the major factors of production are land, labor, capital and entrepreneurial ability. The following are their definitions: Land – includes natural resources such as forests, mountains, and bodies of water like rivers, lakes and seas. Labor – refers to both physical and mental efforts like the works of farmers, fishermen, workers, clerks, lawyers, teachers, doctors, etc. Capital – pertains to machines, equipment, buildings and other physical resources which are used in the production of goods and services. This is an economics definitions. In other concepts, capital refers to seed money which is utilized for starting a business. Entrepreneurial ability – coordinates the other factors of production such as land, labor and capital. It is the spirit of enterprise. Without such ability, the other productive resources tend to be inefficient. Figure 11-1 Inputs Outputs - money - shoes - machines - bags - materials - books - manpower - rice Technology - management - houses - information - cars  3 The aforementioned illustration of input-output relationship indicates that productive resources, such as materials, money, machines and others have to undergo a processing stage before they are transformed into products, like shoes, cars, appliances and others. Such process of production is referred to as technology. Clearly, enterprises which apply proper and efficient technology have the economic advantage in terms of costs, quality and quantity. Naturally, such enterprises are the winners in the market. Cost of Production Cost of production represent the payments for the factors of production. These affect the ability and willingness of entrepreneurs to produce. When production cost are high, prices go up. This decreases the purchasing power of the consumers. This results to lower quantity demanded for goods and services. In other words, there is a decrease in sales which is not favorable to producers or sellers. Producers must choose productive resources which are abundant in supply, because these are much cheaper than scarce resources. Cheaper inputs mean lower costs of production. In terms of profits, lower costs of production favor the producers. In the rural areas, there are many raw materials that can be used for the creation of products. Their use should be maximized not only to produce goods, but also to create jobs for the rural poor. The total costs of production is the sum total of expenses in producing a product or service. It is also equivalent to the sum of fixed cost and variable cost. The former remains constant regardless of the volume of production while the latter changes in proportion to the volume of production. Rents are fixed cost while expenses on raw materials are variable cost. If there is no production, there is no variable cost, but there is fixed cost. Total costs divided by the number of goods produced equals average cost per unit cost. Rules of Production TR = Total Revenue (income) TC = Total Cost (expense) When TR is greater than TC, produce more When TR is less than TC, stop producing When TR is equal to TC, maintain production Factors Payments Land Rent Labor Wage Capital Interest Entrepreneur Normal Profit Total factors Total costs of production So the entrepreneur still enjoys a financial reward in the form of normal profit. When TR is above TC, there is pure profit. Such profit is the difference between market price and cost of production.  4 Under the short-run period, the rules of production are: When TR is greater than VC, operate When TR is less than VC, shut down Variable cost (VC) refers to the operating expenses like salaries, cost of raw materials, office supplies and bills like water, telephone and electricity. If TR is more than VC, it is still good to continue business, assuming TR is less than TC. The fixed cost (FC), which is part of TC can be recovered in the long-run period of business operations. For instance, the case of SM Mega Mall. The fixed costs amount to hundreds of millions pesos representing the expenses on the land, building, machines and other expensive equipment like escalators. Such huge expenses cannot be recovered in a few years’ time. However, if the TR of SM is more than its VC, the enterprise is already lucky. Relevant Technology Technology refers to the process of transforming resources into goods and services. Clearly, big enterprises are capable of using high technology which requires modern machines and less number of workers. However, in our country, such technology is not relevant considering our depressed socio-economic conditions. Based on the book Small is Beautiful by Schumacher, less developed countries like the Philippines should adopt “intermediate technology.” This technology is between primitive technology and modern technology. It is more than primitive technology and cheaper than modern technology. Intermediate technology requires local labor and material, and simple management. Our country has an abundant supply of idle labor and raw materials. Entrepreneurs can utilize such cheap resources for the production of goods and services. Such business ventures can reduce the problems of unemployment, and can contribute to the economic development of our country, especially the rural areas where most of the poor live. Produce or Purchase In producing certain products, there are parts or components that are needed. Is it better to produce or purchase such component? Not a few small businessmen just buy components or economy. Producing component require the use of resources, such as machines, money, equipment, materials and technology. Most business enterprises do not have these productive resources. So, they prefer to purchase. However, the decision to produce or purchase components does not only involve economics, but also other factors which are essential in the production process, such as: 1. The quality needed. If the components are of poor quality, then the entrepreneur has good reason to produce them rather than purchase them. However, there are many firms which specialize in the production of components. These can offer better quality components. 2. The quantity demanded. If few units are needed, it is better to buy the components. Specialized firms can produce components at a lower price and better quality. On the other hand, a demand for large quantities on a continuous basis favors the entrepreneur to produce such components.  5 3. Availability of supply. If supply of components is sure and dependable, the entrepreneur can rely on suppliers for his production needs. On the other hand, unreliable supply causes delay in production. This results to lost sales and possible layoff of workers. Such situation requires the entrepreneur to produce the components. 4. Production requirements. This is the most important determinant whether to produce or purchase the components in the production of a product. Producing a component requires machine, space, money and materials. In the entrepreneur foes not have money, he has to consider if such money could be used better elsewhere. Ultimate, the entrepreneur has to evaluate the unit cost or average cost in producing the component. More often than not, it is better for small businessmen to purchase their components for production. How to Purchase An entrepreneur has to buy his inputs for production. This is not as simple as it appears. The needed inputs must be available at the right time, proper quantities, and at a minimum costs. To ensure the above requirements, the entrepreneur must select his suppliers and must have purchase planning. It is always advisable to get backup suppliers even if current suppliers are efficient. Strikes or breakdowns of equipment of regular suppliers certainly stop their flow of supplies. If these happen, then the entrepreneur has an alternative supply of materials from backup suppliers. Here are the criteria for selecting good suppliers: Price. A small difference in price, say 5 centavos, is a big amount of money if huge quantities are purchased in one year. Some suppliers offer free delivery and big discounts for large purchases. These are advantages for the entrepreneur. Quality. Price and quality should be evaluated. Usually, high quality materials have higher prices. What is necessary is minimum quality, as long as the materials are suitable for their intended uses. Reliability. Suppliers who cannot deliver their materials on time can ruin the business of an entrepreneur. Even if their supplies are of high quality and at low price, if they cannot meet their delivery schedule, they are still not a good suppliers. In the case of purchase planning, its objective is to balance two opposing forces: absence or lack of materials for production and over supply of materials. If there are no materials for production, work is temporarily stopped. Clearly, this is not a good business for the entrepreneur and his workers. On the other hand, a large stockpile of materials is also not good. It constitutes idle money. An important factor in purchase planning is lead time. This is the time that elapses between placement of an order and receipt of such order. The entrepreneur can depend on various mathematical models on how to optimize the timing of orders and to manage ordering costs. A good model is the EOQ (economic order quantity). It determines when orders should be placed.  6 EOQ = √ 2 x 5 x 0 c s = usage in units per period o = order cost per order c = carrying cost per units Example: s = 160. O = P5, c = P1 EOQ = √ 2 x 160 x P5 P1 = √ 1600 = 40 units Inventory Control Inventories are stocks of goods and materials. There are three types of inventories: 1. Raw materials inventory. These are stockpile of materials for inputs of production. 2. Work-in-process inventory. These are partially completed products that require further processing. 3. Finished-goods inventory. These are completed goods for delivery to customers. Each of the said inventory has a storage cost and a stock-out cost. The latter refers to the cost running out of an inventory. For finished products, the stock-out cost is loss of sales. There are no products to sell. To minimize such cost, there must be an inventory control. Computers are useful in inventory control. Small businessmen can avail of micro-computers or personal computers to keep track of inventories. Scheduling Scheduling is the process of ensuring the delivery of materials at the right place and right time. Such materials, semi-finished goods or finished goods. Raw materials may be moved from storage facility to the work station. The semi-finished products may be moved from one work station to another work station. The finished products may be transported from the warehouse to the stores or customers. The movements of such materials or products require specific time to avoid delays. The PERT (Program Evaluation and Review Technique) is used to monitor and control scheduling of activities. Under PERT, all the major activities of the project are first identified. The completion of each activity is called event. The events are sequenced and are given numbers representing hours, days or months for their completion. The activities are represented by arrows. The path that requires the longest time from the first event to the last  7 event is called critical path. The activities along this path should be scheduled and controlled. A delay in just one activity causes a delay in the completion of the whole project. Figure 12.2: PERT Diagram for printing a book Sample design (2) 2 3 8 Cover Book design preparation (7) Cover approval (1) Cost estimate (3) (6) Printing start binding 11 1 6 7 10 (20) Manuscript evaluation Typesetting Proofreading Pages preparation (6) Final (12) (60) proofreading (10) 9 (8) 4 5 Editing (30) event ( ) Number of days to complete activity activity The critical path runs from events 1, 4 and 5 to event 6 which takes 102 days, rather than connecting events 1, 2, 3 and 6 which takes only 11 days. It proceeds to events 7, 9, 10 and even 11. Note that even a delay of 6 days in the preparation of the book design will not delay the publication of the book. However, a delay in any activity on the critical path, like editing, typesetting or evaluation, will surely prolong the number of days of publication. Quality Control Quality control is a process of ensuring that goods and services are produced in accordance with their designs and specifications. Enterprises which have established their reputations for quality are very strict on quality control. Quality has become the central point of their business. In a very competitive market, quality is a sure winner. There are two ways to ensure the quality of products. One is the formation of quality circle. A group of employees officially meet to study and solve problems of quality. Another is through inspection. This is being done  8 at various times during production. Visual inspection is enough for certain products. However, for other products like part of airplanes and nuclear reactors, X-ray inspection may be needed. Clearly, the principal objective of quality control is to sustain the standard or reputation of the enterprise. Such objective is in line with the goal of the enterprise to maximize customer satisfaction. High quality attracts more customers which results to more profits. Besides, without quality control, more rejects or factory defects are produced. This is additional cost of production. Productivity Productivity is the efficient creation of goods and services. If worker A can finish 10 dolls a day while worker B can finish 8 dolls a day, then the former is certainly more efficient, quality being the same. Productivity is measured by the number of products produced. Productivity is a product of various factors. It can be the work place, such as lighting, ventilation and sanitation. If these are not favorable, they reduce productivity. It can only be an economic factor, like salary, overtime pay and other monetary incentives. If these are fair or generous, they increase productivity. Human relations can likewise affect productivity. If management treats it employees with dignity, respect and justice, productivity id improved. Employees are the most important productive resources of any organization. If they are trained and treated properly, they are capable of attaining peak performance. For this reason, progressive business enterprises never stop developing their employees through education and training. Japanese firms are successful because they love their employees. They consider them as members of their families. Whatever financial needs their employees have, they get their company’s assistance.  9 Exercise: 1. In production, the principal actor is the entrepreneur. Why? 2. Producers should use resources which are abundant in supply. Why? 3. What are the rules of production under the short-run period? 4. Define technology. 5. Explain purchase planning. 6. Define scheduling. 7. Give your example of a project and enumerate at least three activities which belong to the critical path. 8. Define quality control.  10 MARKETING FOR SMALL BUSINESS During the ancient times, marketing was done through barter. With the introduction of money, the flow of goods and services from producers to consumers became faster and more efficient. At present, the marketing system become modern through the help of modern payments system, and modern transportation and communication facilities. What is obvious to all of us, except those in primitive societies, is that marketing has contributed greatly in improving our material standards of living. We have modern appliance, elegant houses, beautiful cars, and other symbols of convenience, prestige and wealth. Of course, the poorest of the poor are only witnesses to such conspicuous consumption of the affluent society. Small business, particularly retailers, can well serve the needs of poor consumers, especially in the rural areas where big businesses hardly exist. This module present various topics, such as major marketing functions, importance of consumer service, marketing plan, consumer behavior, developing marketing strategies and introducing new products. In addition, pricing strategies, distribution channels and break-even analysis are discussed. Objectives At the end of this module, students are expected to learn the following: 1. Marketing for Small Business 2. Marketing Defined 3. Major Marketing Functions 4. Marketing Concepts vs. Selling Concept 5. Importance of Consumer Service 6. Marketing Plan 7. Developing a Marketing Plan 8. Consumer Behavior 9. Introducing New Products 10. Promotions 11. Distribution Channels 12. Pricing Strategies, and 13. Break-even Analysis Marketing Defined Professor Kotler defined marketing as a set of human activities directed at facilitating and consummating exchange. The definition of Kotler includes three elements: (1) two or more persons who are potentially interested  11 in exchange, (2) each person having things of value to offer to the others, and (3) each of them is capable of communication and delivery. The American Marketing Association defines marketing as the performance of business activities that directs the flow of goods and services from producer to consumer. Marketing is not just a single activity, but a process. It is a process of establishing natural satisfaction in exchange relationship between buyer and seller. Professor William Stanton explains that marketing is a transaction intended to satisfy human needs. Aside from goods and services, ideas, people and place are also marketed. Prof. Stanton also defines market as- needs to satisfy A market is people with money to spend willingness to buy Major Marketing Functions 1. Exchange functions a. Buying b. Selling 2. Distribution functions a. Transporting b. Storing 3. Facilitating functions a. Financing b. Standardizing c. Grading d. Risk-taking e. Marketing information Marketing Concept vs. Selling Concept Selling is one of the oldest professions. But not marketing. The latter is relatively a new subject. Marketing includes an integration of various functions, such as marketing research, new product development, advertising, customer service, distribution and selling. So, selling is only a part of marketing. The marketing concept determines the needs of the customers first, then develop s the product and service to satisfy such needs. In short, marketing is customer-oriented. On the other hand, the selling concept uses a reverse strategy. The enterprise makes the product first. Then it uses various ways of persuading people to buy the product. The focus of selling is on the needs of the seller instead of the buyer.  12 The marketing concept has been put into action by many successful enterprises like Eastman Kodak, Ford Motor Company and Apple Computer. To implement the marketing concept, en enterprise must: 1. Get information about its customers and potential customers. 2. Determine customers’ needs and how well the products of the firm and its competitors satisfy such needs. 3. Direct the marketing resources and activities of the firm to improve products and services, together with reasonable prices for customers’ maximum satisfaction. Importance of Consumer Service Stew Leonard is the owner and operator of one of the largest and most successful supermarkets in New England. His rule No.1 is that the customer is always right. His rule No. 2 is that if the customer is wrong, see rule No. 1. Customers are the most valuable assets. And yet they are easily lost. Since customers are the business of the enterprise, all employees should be trained in customer service. For business to prosper, the entrepreneur should put the customer first in his business. This is the key to the business success of the IBM Corporation and other successful enterprises. The following are some approaches in customer service: 1. Train all employees to be courteous. When a customer feels that he has been poorly treated, he does not usually go back to the store. Customers feel irritated when salesgirls do not pay attention to them. Waiting for a long time to get a product or service reduces customer satisfaction. People like to patronize store with employees who are not only courteous, but also efficient. 2. Coddle the customer. It is the customer who give business to the enterprise. No customer, no business. He should be treated like a king. Wise enterprise cheerfully refund money or replaces goods to their customers without questions. It is more expensive to acquire a new customer than to keep an old one. 3. Remember that dissatisfied customers tell others about their experiences. A customer who feels he has been poorly treated tells others about his bitter experience with a store or firm. Hence, the need to observe always courteous and efficient customer service. 4. Listen to others about your business. As an entrepreneur, listen to your customers, family, employees, competitors and advisers. Evaluate what you hear. Then improve your customer services. Marketing Plan A marketing plan is an outline of actions designed to achieve a specific set of goals. As mentioned earlier, a plan should be realistic. That is, it should be based on available resources. Likewise, a marketing plan must be compatible with marketing resources and the external environment of the enterprise. The latter greatly affects – and in most cases uncontrollably – marketing operations. The external environment consists of: 1. Economic forces – such as inflation and unemployment which directly influence the purchasing power of consumers. For instance, when prices are high, people can only buy a lesser number of goods and services.  13 2. Societal forces – like social and cultural values and traditions that greatly affect the choices of goods and services by consumers. For instance, many Western habits are not allowed in the Middle East for religious reasons. 3. Political force – in the form of government laws and policies that regulate marketing activities. These can be favorable or unfavorable. For instance, unreasonable taxes dampen the growth of marketing. An unstable government discourage both local and foreign investments. 4. Technological forces – such as new methods and new machines that can be both positive and negative for marketing. Entrepreneurs can avail of the benefits of better technology to improve the quality or reduce the cost of production. On the other hand, technology can make existing products obsolete. Technology has given Japan a comparative advantage in the production and marketing of certain products. Clearly, it is technology that makes the industrial products of the rich countries much better than those in the poor countries. Developing a Marketing Plan 1. Assess the marketing environment” - Present and potential market - Marketing programs/strategies - Availability of resources 2. Formulate specific marketing objectives: - Reasonable - Realistic - Relevant to firm’s goals 3. Choose a target market with strategies on: - Product - Pricing - Promotion - Distribution 4. Monitor and evaluate the operations of the marketing program through: - Marketing research - Marketing information system (computer-based) Consumer Behavior Success in marketing depends on the ability of the entrepreneur to identify and understand the behaviors of consumers. Such characteristics of consumers can be studied through marketing research. Of course, in the case of micro-business, there is no need for formal research. This is just an additional expense. Behaviors of buyers can be analyzed through observations and interviews. Those who are in business for a long time already know consumer behavior. An entrepreneur can easily satisfy the needs of consumers if he knows their behaviors. Such knowledge and understanding of consumer behavior create mutual benefits for both seller and buyer.  14 In studying consumer behavior, the following should be considered: 1. Who buys? 2. What do they buy? 3. Where do they buy? 4. When do they buy? 5. How do they buy? 6. Why do they buy? Why Do Consumers Buy? As an entrepreneur, you should know the reasons why people buy a certain product or service. Such knowledge provides you with not only a competitive advantage, but also an opportunity to increase your sales. People have various needs. Naturally, they like to satisfy such needs by buying the corresponding goods and services. Human needs are created by economic, social, educational and cultural influences. Specifically, people buy a certain product for the following reasons: 1. The product satisfies their basic needs. All basic needs like food, clothing, shelter, transportation, medicare, education and others are saleable, because people needs such products for survival. 2. The product gives them convenience. Examples of these products are washing machines, vacuum cleaners and other tools and appliances. Such convenience saves them time and effort. 3. The product provides a future. People buy products for investment purposes, like stamps, paintings, coins and other antiques. They also buy stocks and bonds of stable corporations hoping to get more incomes in the near future. 4. The product offers fame. Now a few people buy products not for their uses but for their status symbols. For example, some unschooled natives in some South Pacific Islands display their Parker pens in full public view. Those who wear Rolex watches experience great pride and high social status. 5. The product protects them. People buy health, life and fire insurance for protection. They also buy alarm and safety devices for protection against thieves. For example, we have safety boxes for our important documents and safety vaults for our money. Developing Marketing Strategies According to Professor Philip Kotler, a marketing strategy is a consistent, appropriate and feasible set of principles through which a particular enterprise hopes to attain its long-run customer and profit objectives in a particular competitive market. Such strategy takes into consideration the following factors: 1. Competitive size and market position of the enterprise 2. Resources, objectives and policies of the enterprise 3. Marketing strategies of competitors 4. Buying behavior of target market  15 5. Stage of product-life-cycle 6. Character of the economy Basically, marketing strategies are the tools of achieving the goals of the enterprise. Every marketing strategy must have a marketing mix as well as a target market. Marketing strategies consists of (1) product strategy, (2) price strategy, (3) promotion strategy and (4) distribution strategy. Marketing mix consists of the ingredients of marketing. These are the product, the price, the promotion of the products, and the distribution of the product. Such combination is designed to reach the target market. The later refer to the buyer who are willing and able to purchase goods and services. The target market can be segmented based on their: - age - sex - race - income - education - occupation - social classes - urban residence Introducing New Products Products have their life cycle, from introduction to growth and maturity, and finally decline. Because of this nature of product life, there is a need to introduce new products or improved products. However, small enterprises, due to their limited resources, have the disadvantage of introducing new products. On the other hand, the said entrepreneurs can avail of the financial and technical assistance from the government. Moreover, they have greater flexibility in developing new products compared with big corporations. Introducing new products is not without problems. In many instances, new products fail. Small enterprises often claim that limited financial resources are the major cause of product failures. Nevertheless, a deeper analysis of the problem shows that product failure is due to the product itself. Here are the main reasons of new product failures: 1. Inadequate market analysis about market needs and size 2. Product defects such as poor quality and design 3. Underestimated costs resulting to higher prices 4. Poor timing in developing the product 5. Competitors driving away the new products with lower prices 6. Inadequate marketing effort to support the new product 7. Weak sales force for lack of training and motivation 8. Wrong channels of distribution Promotions The two most widely methods of promotion are advertising and personal selling. Advertising utilized the media: newspaper, magazine, radio, television, billboard, mail and yellow pages. Personal selling is done on a person-to-person basis with a customer.  16 Advertising has several objectives. Among other things, the more important ones are to increase sales, to introduce new product, or to sustain an established business. There is no magic formula for successful advertising. However, the proper way of creating an advertising is to evaluate the products, services, competitors and customers. Of course, the last one is the critical factor. Advertisers must be able to identify their customers – their buying habits, the newspaper they read, and their favorite radio and television stations. Advertising is expensive. Most small business spend on the basis of what they can afford. In the case of personal selling, this is an area where small businesses has an advantage. In fact, people patronize a small business with its personalized customer service. Effective personal selling greatly depends on efficient sales force. Selling skills can be improved by selecting suitable individuals, providing regular and frequent training, and granting attractive and fair compensation plan. In contrast, big business gives more emphasis on advertising. It is more expensive if it depends on personal selling. Distribution Channels Products move from the producer to the consumer either directly or indirectly. If it is direct, producers deliver the goods to the consumers. If it is indirect, a middleman sells the goods to the final users. A middleman can be a wholesaler or retailer. The right distribution channel depends on the target market. All other things being equal, the most economical and most profitable channel of distribution should be chosen. The relevant factors in selecting the most appropriate distribution channel are: 1. Who are the buyers? 2. Where are they located? 3. How can they be reached? 4. When do they buy? The aforementioned characteristics of buyers can indicate their population and location. It is cheaper for a producer to deliver products directly to a large number of buyers who are concentrated in a very few adjacent areas than in many scattered regions. Likewise, product characteristics influence the choice of distribution channel. For instance, perishable products should be delivered through direct marketing. Pricing Strategies Price is the value of a product or service expressed in money. In our capitalist economy, price allocates goods and services. Those who have more money acquire more goods and services. The government of course interferes in the pricing system to protect the consumers against unreasonable prices. In business, the apparent objective of pricing is to maximized profit. This is only possible in a monopoly (a market without competition) or oligopoly (a market dominated by a small number of suppliers). But in a market situation where there are many competitors, pricing is planned to meet stiff competition, to improve market share, or to get a fair return of investment. Nevertheless, the bottom line in pricing is the cost of production. Enterprises that are more efficient have lower cost of production. Therefore, they can charge lower prices than their inefficient business rivals.  17 There are several pricing strategies. For example, some businessmen post P4.98 instead of P5.00. Others place “Buy one, take one.” Still there are those who combined several loe-price items and mark the packaged P9.95, instead of P2.50 per item. There is also the prestige pricing. A very high price is set to project an aura of quality and status. In the case of new products, an entrepreneur may adopt penetration pricing. A very low price for the new product is offered. The objective is to develop a large market for the new product as soon as possible. Not a few entrepreneurs believe that pricing is the only way to compete. It does not pay to underprice just to get customers. It is not fair to competitors. Besides, it invites price competition. It is much better to offer non- price competition in the form of: - Quality - Service - Convenience - Delivery - Safety - Guarantees - Cleanliness - Easy credit options Break-Even Analysis Break-even analysis compare total revue (TR) with total cost (TC). TR represents income while TC represent expense of the enterprise. When TR is greater than TC, there is profit. On the other hand, when TC is greater than TR, it means loss. But when TR equals TC, it is break-even. That is, there is no profit and there is no loss. Break-even analysis is a tool used by economists in solving managerial problem. Even government agencies and other organizations depend on break-even analysis in projecting their revenues, costs and profits. For instance, an enterprise may use break-even analysis to determine the effect of projected decline in sales on profit. Such analysis may be used to determine the number of units an enterprise must sell in order to break-even. Here is a formula for: FC Break-even point sales volume (BEPSV) = _________ USP – UVC FC = Fixed Cost USP = Unit selling price UVC = unit variable cost Example: how many units must be sold in order to break-even? FC = P100,000, USP = P10, UVC = P5  18 P100,000 ________ = 20,000 units P10 – P5 FC + VC Break-even point selling price = _______ Q FC = Fixed Cost VC = Variable Cost Q = Quantity Example: What should be the unit price to break-even? FC = P100,000, VC = P20,000, Q = 30,000 P100,000 + P20,000 ________________ = P4 30,000 Break-even Graph A break-even graph assumes that the average variable cost (AVC) is constant. Therefore, this makes TC a straight line. AVC is derived by dividing total variable cost (TVC) with the number of output. It is further assumed that the price of the enterprise is not affected by the number of output it sells. Thus, TR is a straight line. TR is equal to price times quantity or number of output. Here is an illustration of break-even point by means of a graph: Figure 12-1: Break-even point showing profit and loss positions Revenue Cost TR TC 50................. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Fixed Cost Loss Quantity  19 50 The graph shows the break-even quantity of 50 units and the break-even price and cost is P50. Therefore, the price and cost per unit is P1. If the enterprise can only sell below 50 units, it is loss, because TC is greater than TR. Clearly, the enterprise has to sell more than 50 units to make profit where TR is greater than TC. Profit is maximized at a point where the difference between TR and TC is bigger.  20 Exercise: 1. Explain the marketing concept. 2. Why is consumer service very important? 3. Define marketing plan. 4. What do you consider in studying consumer behavior? 5. Define marketing strategy. 6. How do you determine the most appropriate channel of distribution? 7. Explain one pricing strategy. 8. Explain break-even analysis. 9. How many units must be sold in order to break-even? FC = P5 million, USP = P8,000, UVC = P7,000.  21 SOCIAL RESPONSIBILITIES OF ENTREPRENEURS As citizen of the Republic, it is our responsibility to obey the laws of our country. It is likewise our responsibility to help our neighbors whenever they need help. As a responsible citizens, it is our duty to vote during election. We respect human dignity-whether the person is white or black, whether schooled or unschooled or whether rich or poor. When we become entrepreneurs, are we still responsible to our fellowmen, to our community and to our country? In our desire to maximize profits, we are going to cheat our customers, exploit our employees, and dump our wastes into the air, water and land? All of these are opposite of social responsibility. As a result, we have adulterated products, aside from wrong weights and measurements. Manu of our workers are underpaid. Our environment is being destroyed or polluted. This module explains various topics, such as evolution of social responsibility, views of social responsibility, and social responsibility to the community. In addition, topics on the rights of consumers, creation of jobs and business ethics, among others, are explained. Social Responsibility Explained The concept of social responsibility has various meanings to different individuals. For instance, to a banker his social responsibility is to lend money even to the poor producers, and not only to the rich ones. To manufacturers, their social responsibility is to create quality products, and not to pollute the environment. To the rich, their social responsibility is to share their excess wealth with the less fortunate. What then is the social responsibility of entrepreneurs? Professor Howard Bowen defines it as “the obligations of businessmen to pursue their policies, to make those decisions, or to follow those lines of actions which are desirable in terms of the objectives and values of society.” Such definition is rather broad and philosophical. Let us define social responsibility in more specific and practical terms. What exactly is the social responsibility of the entrepreneur or businessmen to his customers, suppliers, stockholders, and fellow businessmen, government, to the community and to his employees? Such business relationships are measured by fairness, honesty and justice. The entrepreneur must sell quality products at fair price. He must also be fair with his suppliers by paying them on time as agreed upon. He must give reasonable profits to stockholders for their investment. He must pay the correct amount of taxes to the government. He must promote the welfare of his employees. He must observe business ethics with his fellow businessmen. Equally important is the social responsibility of the entrepreneur to his community in terms of job creation and environmental conservation. Historical Development of Social Responsibility During the ancient times, the Greek despised trade and commerce. Only the slaves and low-class citizens were engaged in business. The Romans had the same negative attitude towards business. They preferred to be soldiers or farmers. Those became businessmen were guided by their personal ethics and moral judgment. Such  22 values of businessmen were greatly influenced by their religious beliefs and the prevailing laws or rules of conduct. In fact, the Holy Scriptures prohibit the use of false weights and measures. Usurious practices of money lenders were condemned. Also, the Code of Hammurabi regulated commercial activity. One law of the Code says, “if a man hires a field laborer, he shall pay him 8 GUR of grain per year. (GUR means a natural product of sugarcane) During the medieval times – which started after the fall of the Roman Empire in 746 A.D. – business activities were influenced by Christian doctrines. The Church then was a very powerful institution. The most famous Christian doctrine was the compensatory justice of St. Thomas Aquinas. It is composed of just wage and just price. According to this doctrine, the businessman should pay fair wade to his workers. He should likewise charge reasonable price for his products and services. In the latter part of 1700s, the Industrial Revolution emerged. This further bolstered the growth of capitalism which had become strong during the early 1600s. At that time the influence of the Church faded away. The State adopted a laissez faire policy. These are French words which means the absence of government interference in business activities. Such environment encouraged the capitalists to exploit their workers, customers and suppliers. Children and old individuals worked up to 18 hours a day, and they were underpaid. Prices were high, yet quality of products were very low. The abuses of businessmen produced great social philosophers and reformers, like Robert Owen and Karl Marx. Theory of Karl Marx Marx, a German Philosopher, stressed the social importance of labor. He said that workers are the real producers of goods. Yet, he claimed that the benefits of production go to the capitalists and not to the workers. Karl Marx developed his theory of scientific social evolution. He stated that in the beginning, when society was still primitive, there was no social equilibrium. However, when new ideas and new tools of doing things were introduced, the old system was disturbed. As a result, a man became greedy for power and wealth. Man became greatly concerned with material wealth. This led to a class struggle between the workers and the capitalists. The latter wanted to amass wealth at the expense of the workers. In the class struggle between the workers and the capitalists, Marx predicted the downfall of capitalism due to its inherent shortcomings. Of course, such prediction did not come true. There have been no revolutions in industrial economies. Capitalism has not disappeared, instead it has even expanded and has become stronger. Countries with capitalist’s economies, like the United Stated, Canada and Japan, are far more prosperous than communist countries. In fact, communism as an economic system, as well as political system, has collapsed. Communist countries, except Cuba, are now gradually moving towards capitalism. However, the ideas of Karl Marx are not without significance. His treats to the capitalists greatly contributed to the welfare of the working class. Workers have organized their labor unions for their own interests and protection against abuses of their employers. On the other hand, some capitalists have improved their policies towards their workers. However, in many parts of the world, particularly in poor countries, not a few employers still exploit their employees. Poor people are forced to accept low wages to be able to feed their hungry families.  23 A Russian economics professor appears to echo the views of Karl Marx. Professor Khvostov claimed that under capitalism, the fruits of production belong to the ruling class of capitalists who own that factors of production and marketing. They do not contribute their labor to the production process. On the other hand, the workers are producers themselves, but they do not own the factors of production except labor. They are forced by unemployment, inflation and crises to sell their labor at a very low price to the capitalists who take advantage of their miserable conditions, Khvostov further explained. He likewise observed that the capitalists lie on incomes they never earn, but derive by exploitation. Robert Owen the Social Utopian Robert Owen was a product of the University of Experience. He started making a living at the age of 10 as a shop boy. At 18, he was already managing his own small spinning mill. At 20, he was the head of a large Manchester cotton mill. And at 29, he was the director and co-owner of a large textile factory in New Lanark, Scotland. As managing director of the said cotton mills, he abolished child labor. Instead, he organized infant schools. He reduced working hours to 11. He built houses for the workers and replace all liquor stores with provision stores selling quality goods at cost to the workers. In the community, Owen sponsored beautification, a health and sanitation projects. As a result, New Lanark became a model manufacturing village in Great Britain. Robert Owen, being a social reformer, believed that society must be completely restructured on the basis of common ownership, equal rights and collective labor. He contrasted his social system to that of capitalism which is a system of competition and exploitation. He linked the worsening conditions of the working class to the introduction of machines during the Industrial Revolution. In 1820, Owen strived to propagate the cooperative association of workers. Some years later, he took active part in the cooperative and labor movement. In addition, he preached the ideas of socialism for 40 years. In gratitude, succeeding generations honored him as the “Father of Socialism and Cooperatives.” The Creation of Wealth In Europe and the United States during the 1800s, the captains of industry believed that their social responsibility was to create wealth – not to share it. The Protestants of Europe claimed that industry and frugality could create wealth. However, John Rockefeller, who became super rich from his oil business, said: “I believe the power to make money is a gift of God … to be developed and used to the best of my ability for the good of mankind. Having been endowed with the gift I possess, I believe it is my duty to make money … and still more money, according to the dictates of my conscience.” Unfortunately, the use of his money for charitable projects even outside the United States contradicted the inhuman treatment of his own factory workers. They were shit or burned alive during industrial strifes. This was not an isolated case. All the other industrialists exploited their workers as well as their customers. In 1923, John Rockefeller, Jr., although a follower of the philosophy that profit comes first before social responsibility, questioned whether the rule of the industry is only an institution for creating wealth. He wondered if the health and happiness of the workers might not be also be a major concern. He was determined not to make the mistakes of his father. Henry Ford, another business magnate in the car industry, stressed service before profit.  24 The Influence of Labor Unions. Before the 1930s, businessmen enjoyed too much freedom. Government protection and promotion of the welfare of the consumers and workers were minimal. It was still a laissez faire situation. By today’s standard, working conditions were not favorable. People worked more than 60 hours and there was no minimum wage law. Benefits, like paid vacations, medical insurance, overtime-pay were not given by almost all enterprises. (In fact, until now in the Philippines, not a few businessmen do not grant such incentives.) Work areas were crowded and unsafe. There were many industrial accidents. Due to such abuses, workers formed their labor unions. They demanded for better working conditions and security of tenure. However, the government was even more supportive on the side of the employers. This is true even in many poor countries. Labor organizations have been branded as tools of the communists. Theories on Social Responsibility 1. Economic model. This is based on the traditional concept of business. That is, the primary objective of business is to earn a reasonable profit, as well as to offer quality goods and services, and to provide employment. Such model claims that society will benefit most from business is left alone in its operations. Business has done its social responsibility by satisfying the needs of the consumers, creating jobs and paying taxes to the government. Such taxes are being used by the government for social services. 2. Socio-economic model. It believes that businessmen have their responsibility to stockholders as well as to their employees, customers, suppliers, and the general public. It stresses not only profit, but also the implications of business decisions on society. It is argued that since an enterprise is a creation of society, and that it conducts its business in the community, the enterprise has a social responsibility to share its earned resources with the needs of society. Colgate-Palmolive, for instance, has stated that a firm must return to the community what it has taken. 3. Classical model. An enterprise is socially responsible if it stresses to use as efficiently as possible the resources at its disposal in producing goods and services that society needs at a price consumers are willing to pay. Milton Friedman, a noted monetary economist, is a follower of the classical view. He said that there is only one social responsibility of business – to use its resources and engage in activities designed for profit so long as it stays within the rules of the game. Arguments for Social Responsibility 1. Business cannot and should not ignore social problems because it is a part of society. 2. Business has resources, like financial, technical and managerial, that are required for solving social problems. 3. Business can earn more profits in the long run by helping eliminate or reduce social problems. 4. Business can expect less government intervention if it performs its social responsibility. Arguments against Social Responsibility 1. Business managers are primarily responsible to stockholders. Thus, their job is to earn profit for their investors.  25 2. The resources of the enterprise – time, money and talent – should be used to maximize profit, not to solve the problems of society. 3. The effects of social problems on society is very general. Business should not be expected to solve such problems. 4. Social problems are the responsibility of the government officials. They were elected basically to solve social problems. This is their fundamental responsibility to the voters. Social Responsibility to Consumers If there are human rights, there are also consumer rights. However, consumers are not strong in protecting their rights against capitalist exploitations. Although there are now several organizations of consumers, their power is hardly felt. It was President John Kennedy who introduced the four basic rights of consumers. These are: 1. The right to safety. This means products are safe for their intended use, contain clear and complete instructions for their proper use, and have been tested by the manufacturers for quality and reliability. It is rather very unfortunate that some industrial countries use the consumers in poor countries, like the Philippines, as their testing laboratory. 2. The right to be informed. This refers to the availability of complete and correct information about the use of the products. For example, food items must contain detailed information on their ingredients. Loans must provide the true terms of payment and interest rate. Likewise, products must contain warnings on their potential dangers, if there are any, such as in the case of wines, cigarettes and drugs. 3. The right to choose. It is the policy of the government to encourage competition among sellers or producers, so that consumers can choose the best products in the market. This is good because through competition, goods and services have better quality and power prices. If there is only one producer, the tendency is for the consumers to be abused. For this reason, progressive governments are against monopolies. 4. The right to be heard. This is based on the concept “the customer is always right.” Sellers should listen to their buyers and act immediately on their complaints. Good business enterprises have their customer relations department. The job of this office is to please their customers. Social Responsibility to the Community The price of economic growth id destruction of the environment through pollution of the air, land, water. Such pollution has adversely affected the lives of both human and animals as well as those of the plant kingdom. As a result, the incomes of farmers and fishermen have declined. These are the evils created by industrial enterprises. The areas of the world are filled with 20 billion tons of garbage including coda cans, radioactive waste, toxic chemicals, heavy metals and human waste. In Czechoslovakia, pollution from coal-fired factories has damaged over two million acres of forests. The red tides are also linked to water pollution. Red tide comes from the clustering of billions of tiny one-called brownish red protozoan flagellates which are microscopic plantlike animals. These micro-organism produce a reddish color. Water pollution greatly accelerates the reproduction of such organisms. They secrete a very toxic substance which poisons shell fish such  26 as tahong, talaba, halaan, alimasag and alamang. Fishes can also be victims of red tide poisoning. Red tides are found in the waters of Africa, Asia, South America, California, Texas, Florida, Gulf of Mexico and the Portuguese coast. In the case of air pollution, it can also destroy the atmosphere, particularly the ozone layer. This layer protects the Earth from the damaging rays of the sun. its depletion can increase incidence of skin cancer, and blindness and can also harm crop harvest and aquatic resources. Man-made chemicals and volcanic gases contribute to the rapid destruction of the ozone layer. Countries mostly affected by the depletion of the layer are Northern Europe, Russia, Canada, Chile, Southern Argentina and the South Pole. Chemicals emitted by air conditioners, refrigeration and aerosol cause massive destruction of the ozone layer. Pollution in Metro Manila The Philippines has not been bypassed by the evils of pollution. People in Metro Manila dump huge quantities of domestic wastes which flow to Manila bay. As a result, Manila Bay is no longer safe for swimming. In fact, many beaches in Cavite are infested with disease-causing bacteria. Air pollution in Metro Manila is above 300 percent of allowable level. EDSA has the highest pollution level. The biggest air pollutants are toxic emissions from motor vehicles, open dump sites and industrial wastes. Sixty percent of the pollution in Metro Manila is caused by motor vehicles and forty percent by factories and power plants. Among the municipalities, the most polluted is Valenzuela. In the city of Manila, Ermita tops the list. Marikina, Quezon City, Pasig and Malabon are polluted. Las Piñas is the least polluted among the Metro Manila municipalities. Since the aforementioned pollutions comes mostly from the business sector, it is the responsibility of the captains of commerce and industry to help government clean up the environment. However, their primary social responsibility is not to pollute the environment. It is sad to note that our rivers and creeks are heavily polluted by factories, like Navotas, Malabon and Valenzuela. Other Social Responsibilities 1. Employment. Business enterprises should adopt the policy of “equal opportunity employment.” This means there are no discriminations against race, sex and religion. In some countries, women and colored people are at a disadvantage in employment. On the other hand, progressive countries recruit their employees regardless of age and sex. In fact, they do not give much importance to the diploma. What they need are competence and experience. 2. Education and training. Business organizations, particularly the big and successful ones, should contribute their resources to the education and training of the poor and disabled persons in the community. Such human resources are potential assets to the community and to business organizations. A business enterprise cannot be stable if it is surrounded by poverty and other social problems. Japan is a very wise nation. It has been helping its poor neighboring countries build their roads to increase its sales of cars and motorcycles. Asia is a very big market for Japanese products.  27 3. Community development. The business organization is very much a part of a community. Thus, it is its social responsibility to help the development of the community, so that it will be a better place to live. Community development includes health and sanitation, livelihood projects and cultural and sports development. Business Ethics Ethics is the study of right or wrong. It is a moral choice by an individual. In business, it is the application of moral standards on business decisions and actions. Business ethics involves relationships with employees, investors, customers, creditors and competitors. There are many businessmen who are not fair and honest in dealing with the said groups. For instance, they exploit their workers. They do not pay their creditors on time. They cheat their buyers by selling poor quality products or use wrong weights and measures. In the 1977 General Assembly, the Bishop-Businessmen Conference for Human Development drafted the Code of Ethics for Philippine business. Among other things, the preamble of the Code of Ethics states that man has a dignity that must be respected, and that all the resources of the earth have been created for his growth and development. The modern business entrepreneur must be a strategist for human development. And the rationale of business is to build an enterprise oriented to the development of man. Peter Drucker, internationally famous management consultant, said: The first responsibility to society is to operate at a profit… Business is the wealth-producing organ of society… But what is most important is that management realizes that it must consider the impact of every business policy and business action upon society. It has to consider whether the action is likely to promote the public good, to advance the basic beliefs of society, to contribute to its stability, strength and harmony… the ultimate responsibility of management, to itself, to the enterprise, to our heritage, to our society and to our way of life.  28 Review Questions 1. What is the social responsibility of management, according to Drucker? 2. Explain the compensatory justice of Aquinas. 3. State the theory of Marx. 4. Do you agree with the Russian professor? Why? 5. How did Owen help his workers? 6. Which theory of social responsibility is right? Why? 7. Explain one basic right of the consumer. 8. Cite one specific project where a big corporation can finance for the welfare of the community.  29 BUSINESS SUCCESS THROUGH PEOPLE DEVELOPMENT Former President Julius Nyerere of Tanzania, Africa, the legendary leader of the African nations and former classroom teacher, said that there is real economic development if and only if there is people development. It is the quality of its people that makes a nation great, not its natural resources nor its buildings and roads. The same measure applies to entrepreneurs who are in constant search of excellence. Business success greatly depends on people. Money, machines and materials are only secondary. For business to maximize profits, it must first maximize customer satisfaction in terms of quality and service. This is possible only if employees are efficient and people-oriented. Similarly, the main determinant of academic excellence is the teacher, not books nor classrooms. For lack of written materials on excellent Philippine corporations, the example given in this chapter are American enterprises, like IBM, Procter and Gamble, McDonald and others. Nevertheless, business principles and practices are universal in nature. For instance, excellent customer service and quality products are what consumers need, whether they are Filipinos, Americans, Russians or Japanese. Motivating People People perform in accordance with the expectations of their superiors. If they are told that they are winners, they become winners. If they are told they are losers, they become losers. Label an employee inefficient and he will start acting like one. Research made by Warren Bennis in his book The Unconscious Conspiracy shows that in a study of school teachers, those who held high expectations of their students have increased 25 points in the students’ IQ scores. Likewise, self-perception affects performance. In an experiment, adults were given ten puzzles to solve. All ten puzzles were exactly the same for all examination takers. When the examination papers had been finished and submitted, the results were announced. However, such results were fictitious. Half of the examination takers were told that they had performed well while the other half were told they had poor ratings. Afterwards, the examination takers were given another ten puzzles, the same for each person. Those who were told that they had done well in the first examination really performed well in the second examination while the other half became worse. Positive Reinforcement  30 Not a few enterprises have negative attitudes on their employees. They scolded their employees for poor performance. They instill fear among their employees. Although they encourage risk-taking ventures, they punish even tiny failures. On the other hands, successful enterprises let their employees feel they are winners. And they design systems to reinforce such positive attitudes. At the IBM, management ensures that 70 percent to 80 percent of its people meet their quotas. This has been attained because IBM people think they can do it. The systems of successful corporations are not only tailored to create winners, but also to reward and celebrate the winning through monetary and non0monetary incentives. The President of IBM gives a check on the spot for achievement he observes. B.F. Skinner, in his Treatise “Beyond Freedom and Dignity,” says that we are all simply a product of the stimuli that we get from the external world. He claims that jobs well done should be rewarded. According to him, positive reinforcement produces desirable behavior in the intended direction. On the other hand, repeated negative reinforcement does not produce good results. Skinners claims that a person who is punished only learns how to avoid punishment, instead of doing the right thing. For example, an employee who has been punished for not treating properly a customer, may learn to avoid a customer so as not to punish. Employees’ Expectations from Management 1. Security of tenure 2. Opportunities for advancement as business grows 3. Treatment as human beings-with respect and dignity 4. Participation in decision-making 5. Sharing of authority and responsibility 6. Open and sincere communication 7. Rewards for achievements 8. Opportunities for personal growth 9. Infusion of a sense of pride in a job well done 10. Involvement in setting precise goals. How to Get Peak Performance 1. Careful placement. And employee should be given a job tailored to his competence and interests. It is easier to motivate employee who loves his work. 2. Keep the employee informed. Management should give the employee sufficient and necessary information to perform his job well. He should know the relation of his work to the work of the whole enterprise. He should also know his contributions to the enterprise and to society. Without such information. The employee lacks incentives and the means to improve his performance. 3. Opportunities for participation. An employee who participates in planning and decision-making within his competence gets the feeling of importance and a sense of achievement. He tends to perform well because he is an important part of the activity.  31 4. High standard of performance. A job that makes a high demand on employees challenge them to improve their performance. Such job gives employees more pride of workmanship and accomplishment. However, it is also important that management put up a high performance on itself. 5. Give them responsibility. Many believe that giving satisfaction to employees motivates them to peak performance. Peter Drucker did not agree with this. He said that employee satisfaction is not enough to fulfill the needs of the enterprise. According to Drucker, it is responsibility that motivates employees to reach peak performance. In addition, Drucker states that monetary rewards are important motivating factors. But these are not enough. The money factor can only motivate if the employee is able and willing to assume responsibility. He said the use of fear is not advisable. Instead, the employee should be induced to assume responsibility. Features of Excellent Enterprises 1. They solve their own problems. The standard operating procedure is “Do it, fix it, try it.” Whenever there is a big problem, the best senior executives study the problem, come up with an answer, and implement it. In testing ideas on customers, several small groups (5-25 engineers and marketers), instead of one bog group, are formed. They employ several practical devices in solving the problems of the enterprise. 2. The customer is No. 1. At the IBM Corporation, the customer is always the first priority. And the customer is always right. IBM and other excellent enterprises learn from, their customers. In response, they provide quality, reliability and service to their customers. 3. They develop the spirit of entrepreneurship. They encourage risk-taking and innovation in their business organization. There is a substantial tolerance for failure. Records show that most giant corporation stop innovating. But in the case of excellent enterprises, their bigness is not an obstacle, because they act small. They stimulate entrepreneurial spirit among their employees. 4. Productivity through people. Excellent enterprises are people-oriented. To them, their employees are the most valuable asset. They treat their employees as adults and as partners. They are treated with dignity and respect. IBM’s most important philosophy is respect for the individual. Mr. Watson, the founder of IBM, loves to talk with his employees, not as a supervisor, but as an old friend. Furthermore, employees of excellent enterprises are well-trained and they get abundant monetary and non-monetary rewards. They want their employees to be happy so that they become productive. However, recruitment of their employees is extremely rigid. They want the best and the brightest. 5. The philosophy of the enterprise. Excellent companies expect and demand superior performance from their people. at Apple Computer, they hire great people, and they create an environment where their people can make mistakes and grow. Top executives of excellent enterprises spent most of their time in the field talking with employees and customers. Here are some modified basic values of excellent companies (Peter and Waterman, 1982): a. A belief in being the best b. A belief in doing the job well c. A belief in the importance of people d. A belief in superior quality and service  32 e. A belief in informal and friendly atmosphere to enhance communication f. A belief I the importance of economic growth and profits g. A belief in corporate social responsibility 6. They stick to business in which they are competent. Not a few successful companies branch out other kinds of business with which they are not familiar for the sake of diversification. Almost always they fail. In the case of excellent companies, they remain close to business they know-where they have skills, competencies and experiences. Eduard Harness, former chief executive of Procter and Gamble, said the company has never left its base. 7. Simplicity. Excellent companies are elegantly simple. Their organizational structure is simple. The central staff is small. Such simplicity enhances flexibility. They utilize task forces, project centers and other temporary schemes to get fast results. A very good example of corporate simplicity is Johnson and Johnson. It has 150 independent divisions. Each division is a company and it is headed by a “chairman of the board.” Johnson and Johnson has more than 55 consumer product divisions. Each division is responsible for its own marketing, distribution and research. Excellent companies believe in “small is beautiful.” New divisions are created when there are new or expanded activities. 8. Simultaneous centralization and decentralization. They provide maximum individual independence, but they strictly require compliance to their few core values, such as excellent quality and service, respect for individuals, the sovereignty of the customer, and others. World class entrepreneurs, like Watson of IBM, Straus of Levis, Johnson of Johnson and Johnson, Kroc of McDonald and others, became successful because they live by their values. Thus, they demand that their employees follow their values. They are strict disciplinarians. For instance, employees who violate “IBM Means Service” are fired. Success Techniques of Famous People 1. Positive assumption. A very successful businessman in Toronto used positive assumption. Before approaching a prospect, he assumed positively in his conscious mind that the sale was already finished. So, he was confident in approaching his prospect. He told his prospect that he has the best product and that they should prepare a effective advertising for all others to know. Such technique of the salesman requires an affirmative attitude to influence the other person. 2. Visualization. According to William James, the father of American psychology, mental pictures if supported by strong beliefs becomes realities. Henry Ford used this technique of visualization in creating his dream car. He pictured many people buying and driving his low-price car. His vision became a reality – the second largest automobile company in the United States. Other famous persons, like Napoleon, Onassis and Hilton practiced visualization. Napoleon imagined his moves before going to the battle field. Onassis, the Greek shipping magnate, dreamed of being the owner of many ships when he was a boy. Indeed, he became very rich and very famous. Hilton during his teens visualized the hotels he wanted to own. Now his hotels are found in all the great cities of the world. 3. Affirmative repetition. This is a sincere request supported by conviction and faith. If success is desired, implant thoughts of success into the subconscious mind. Henry Kaiser, the office boy who became a billionaire, made a regular practice of repeating to himself: “I am a success.” He implanted in his mind that  33 every business project he undertook was successful. His gigantic industrial empire includes steel, cement, aluminum, construction, hospitals and a radio and television station. 4. Bulldog tenacity. Failures are stepping stones to success. Failures should encourage people to strive more. As the saying goes: “A quitter never wins, a winner never quits.” Hard work and perseverance lead to a success. Thomas Edison used perseverance to succeed. He experienced 10,000 failures before perfecting the electric light. His multi-million laboratory, together with important notes and equipment, was destroyed by fire. But he was not discouraged. He rebuild his laboratory and labored until he reached his goal. There are many other rags-to riches stories which are full of human endurance and the will to succeed. 5. Dynamic first impressions. First impressions count much. This is also true in business dealing. Andrew Carnegie used this approach. As a result, from a factory boy he became the owner of a giant steel corporation. As an employee, he applied positive thinking to impress others of his capabilities. He projected a dynamic image – warm, courteous and respectful – to attract others during his first meeting with them. Good Character Creates Success 1. Integrity. This is the key to our character. People can be hardworking and efficient. But if they do not have integrity, they do not have permanent success. Employers want individuals who are honest, dependable, fair and honorable. This also applies to business dealings. People want an honest, fair, dependable and honorable entrepreneur. Even in the government, the integrity of top officials can enhance the success of programs and projects for the benefits of the masses. 2. Faith. This is a positive attitude of the mind. It makes the difference between success and failure. Those who firmly believe that they can achieve prosperity and happiness get them. In fact, faith moves mountains. Those who have no faith in themselves, in their country, in others and in God get what they deserve. A very good example of faith is the incredible story of Helen Klaben (21 years old) and Ralph Flores (42 years old). Their plane crashed in snow (50 degrees zero). Experts expected them to live only for a few days. But the two spent 49 days on the mountainside between the Yukon Territory and British Columbia – 40 days without food. Their faith in God and their own personal faith that rescue would come saved them from death. The movie “Alive:, based on true story, likewise depicted the unfading faith of the leaders of Brazilian baseball players whose plane crashed in a mountain snow in Chile. Those who had faith among them survived 70 days in the snow. 3. Enthusiasm. It radiates energy, happiness, optimism and inspiration. These are some of ingredients of success. An entrepreneur who lacks enthusiasm cannot motivate his workers and customers. Without enthusiasm, it is difficult to transform a good idea into a successful reality. 4. Discipline. Our minds and emotions are the sources of our success or failures. If we know how to control our actions which come from our minds and emotions, then we have discipline. Punctuality id discipline. Patience is discipline. Group cooperation is discipline. Without discipline, an army cannot be strong. Similarly, a business organization cannot be successful without discipline. 5. Appreciation. Human beings like to be appreciated for their good work. They like also to be respected and to feel important. Evidently, business success depends on others – employees, customers and suppliers. Thus,  34 an entrepreneur must be good in human relations. Here are some ways to make people feel satisfied and important: a. Always greet people with sincere and friendly smile. b. Thank people for their efforts on your behalf. c. Always help people. d. Never criticize without a praise. Avoid negative remarks. e. Remember people’s names and their titles like professor, doctor, engineer, etc. f. Ask their advice on matters in which they are competent and thank them. The Power of Prayer Sincere prayer provide us with deep sense of security, guidance, strength and pure happiness. We should pray to God not to give us money, but to give us strength and opportunity to earn money. We should pray not for a lighter load, but to make our shoulder stronger so that we can carry life’s responsibilities. We should pray not to remove our problems, but to grant us courage and wisdom to solve our problems. Effective prayers are self-reliant. They are not substitutes for laziness or mendicancy. We have experienced or witnessed the powers and miracles of prayers. There are blessings for those who have remained faithful to God. Former President Corazon Aquino greatly depended on prayers during her administration. As a result, she survived several attempts of military takeover and numerous natural calamities. Not a few have recovered from deadly diseases, far beyond the power of medical science. In business, God is not against economic prosperity as long as this is acquired through honest and fair labor. Entrepreneurs can pray for business success. However, God likes them to share their blessings with their employees, customers and the community.  35 Review Questions 1. Self-perception affects performance. Why? 2. What does an employee expect from management? 3. Explain one feature of excellent enterprises. 4. What is positive assumption? Give your own example. 5. Give at least two ways to make people important and satisfied. 6. What is the true measure of success?