ENTREPRENEURSHIP AND FREE BUSINESS ENTERPRISE 1.

Levels of Entrepreneurial Development Level One: The Self-Employed Mindset Level Two: The Managerial Perspective Level Three: The Attitude of Owner/Leader Level Four: The Entrepreneurial Investor Level Five: The True Entrepreneur Idealization Visualization Verbalization Materialization 2. The Relationship between Creativity, Innovation and Entrepreneurship creativity-thinking new thing Innovation-Doing new thing Entrepreneurship-Creating value in the market place Modeling creativity Phase1. Preparation Phase 2: Incubation process Phase 3: Idea generation or Eureka experience, Phase 4: Evaluation and implementation, e.g. prototypes Innovation Innovation Extension Duplication Synthesis Entrepreneurship: SMALL BUSINESS MANAGEMENT 2.1. Concepts and definition of Small Business 1. Size criteria 2. Economic/control criteria. 1. Size criteria Financing of the business is supplied by one individual or a small group. Only in a rare case would the business have more than 15 or 20 owners. Except for its marketing function, the firms operations are geographically localized. Compared to the biggest firms in the industry, the business is small. The number of employees in the business is usually fewer than 100. 2. Economic/control criteria Market share Independence Personalized management Technology Geographical area of operation 2.2. Economic, Social & Political Contributions of small business enterprise Equitable distribution of wealth and decentralization of economic power More Employment creation capacity Removing Regional Imbalance Ancillary (Subsidiary) Function Export Promotion 2.3 Small Business Failure factors Poor operations management Lack of experience Poor financial management Over-investing in fixed assets

Poor credit practices Failure to plan Inappropriate location 2.4. Entrepreneurship and Business Enterprise Creation 2.4.1. Opportunity scouting/ sensing 2.4.2. Opportunity scanning I. Environmental analysis a. Macro environment Political Environment Technological Environment Socio-Cultural Environment Legal Environment Economic Environment b. Sectorial Analysis c. SWOT analysis d. Product/Service

3. FEASIBILITY ANALYSIS, PROJECT REPORT AND BUSINESS PLAN 3.1. Feasibility Analysis 3.1.1 Market Analysis A market, whether a place or not, is the arena for interaction among buyers and sellers. 3.1.2 Financial Analysis 3.1,3 Technical Analysis 3.1.4 Economic Analysis 3.1.5 Ecological Analysis 3.1.6. Legal and Administrative Analysis 3.2. Types of Business Ownership in Ethiopia A. Sole proprietorships Advantages of a Sole Proprietorship: Easiest and the least expensive to organize. Sole proprietors are in complete control, and within the parameters of the law, may make decisions as they see fit. Sole proprietors receive all income generated by the business. Profits from the business flow directly to the owner's personal tax return. The business is easy to dissolve, if desired. Disadvantages of a Sole Proprietorship: Sole proprietors have unlimited liability and are legally responsible for all debts against the business. Their business and personal assets are at risk. May be at a disadvantage in raising funds and are often limited to using funds from personal savings or bank loans. May have a hard time attracting high-caliber employees or those that are motivated by the opportunity to own a part of the business. Some employee benefits such as owner's medical insurance premiums are not directly deductible from business income.

B. Partnerships Advantages of a Partnership: =Partnerships are relatively easy to establish; however time should be invested in developing the partnership agreement. =With more than one owner, the ability to raise funds may be increased. =The profits from the business flow directly to the partners' personal tax returns. =Prospective employees may be attracted to the business if given the incentive to become a partner. =The business usually will benefit from partners who have complementary skills. Disadvantages of a Partnership: =Partners are jointly and individually (legally) responsible for the actions of one or more partners. =Profits must be shared. =Since decisions are shared, disagreements can occur. =Some employee benefits are not deductible from business income on tax returns. =The partnership may have a limited life; it may end upon the withdrawal or death of a partner C. Corporations Advantages of a Corporation: Shareholders have limited liability for the corporation's debts or judgments against the corporations. Generally, shareholders can only be held accountable for their investment in stock of the company. (Note however, that officers can be held personally liable for their actions, such as the failure to withhold and pay employment taxes.) Corporations can raise additional funds through the sale of stock. A corporation may deduct the cost of benefits it provides to officers and employees. Disadvantages of a Corporation: =The process of incorporation requires more time and money than other forms of organization. =Corporations are monitored by federal, state and some local agencies, and as a result may have more paperwork to comply with regulations. =Incorporating may result in higher overall taxes. Dividends paid to shareholders are not deductible from business income; thus it can be taxed twice 3.3 Business Plan 3 .3.1 What Is A Business Plan? It is a carefully elaborated plan on how a new business venture will be implemented. It explains how a new business is to be created. It explains how an existing business is to be expanded or restructured. WHY A BUSINESS PLAN needed to be PREPARED? THE BUSINESS PLAN: CLARIFIES THE BUSINESS STRATEGY IDENTIFIES RISKS IDENTIFIES WEAKNESSES WILL HELP SAVE MONEY PROVIDES INFORMATION FOR DECISION- MAKING IS REQUIRED BY LENDERS, ETC... WHO MAKES A BUSINESS PLAN PROMOTERS OF A NEW BUSINESS VENTURE ENTREPRENEURS

 BUSINESS MANAGERS TECHNICAL SPECIALISTS INDEPENDENT BUSINESS ADVISERS ACCOUNTANTS .but Who can be the best business planner?...... WHO FOR? BUSINESS OWNERS INVESTORS BANK MANAGERS GOVERNMENT DECISION MAKERS BUSINESS MANAGERS PROMOTERS OF NEW ENTERPRISES Business Plan Segments EXECUTIVE SUMMARY Management & Organization Plan Market Analysis Product/Service Plan Sales and Marketing Plan Financial Plan Executive Summary One of the most important parts of the business plan Captures the attention of the reader Explains why the reader should invest time and money Provide clear overview of the company Future growth Marketplace differentiation Business Description General description of business Industry background-trends, analysis of competitors Company history or background Goals and potential of the business and milestones (if any) Uniqueness of product or service Research, Design, and Development A. Development and design B. Technical research results C. Research assistance needs D. Cost structure Manufacturing A. Location analysis B. Production needs: raw materials, facilities and equipment C. Suppliers/transportation cost D. Labor supply E. Manufacturing cost data Management A. Management team key personnel B. Legal structure stock agreements, employment agreements, ownership C. Board of directors, advisors, and consultants SAMPLE BUSSINES PLANE Executive summary 1. Brief Description of the Project 2. Brief Profile of the Entrepreneur 3.ProjectsContributions to the Economy 1. Sales and Marketing 1.1 Product description 1.2 Competitors'

1.3 Location 1.4 Market Area 1.5 Main Customers 1.6 Total Demand 1.7 Market Share 1.8 Selling Price 1.9 Sales Forecast 1.10 Promotional Measures 1.11 Marketing Strategy 1.12 Marketing Budget 2. Production 2.1 Production Process 2.2 Fixed Capital 2.3 Life of Fixed Capital 2.4 Maintenance and Repairs 2.5 Sources of Equipment 2.6 Planned Capacity 2.7 Future Capacity 2.8 Terms and Conditions of Purchase of Equipment 2.9 Factory Location and Layout 2.10 Raw Materials Needed 2.11 Cost of Raw Materials 2.12 Raw Materials Availability 2.13 Labor 2.14 Cost of Labor 2.15 Labor Availability 2.16 Labor Productivity 2.17 Factory Overhead Expenses 2.18 Production Cost 3. Organization and Management 3.1 Form of Business 3.2 Organizational Structure 3.3 Business Experience and Qualifications of the Entrepreneur 3.4 Pre-Operating Activities 3.5 Pre-Operating Expenses 3.6 Office Equipment 3.7 Administrative Expenses 4. Financial plan 4.1 Project Cost 4.2 Financing Plan and Loan Requirement 4.3 Security for Loan 4.4 Profit and Loss Statement 4.5 Cash Flow Statement 4.6 Balance Sheet 4.7 Loan Repayment Schedule 4.8 Break-even Point (BEP) 4.9 Return on Investment (ROI) 4.10 Financial Analysis QUESTION WITH ANSWER 1. How creativity, innovation, and entrepreneurship are related? Entrepreneurship is the result of a disciplined, systematic process of applying creativity and innovation to needs and opportunities in the marketplace. Creativity 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 peoples lives or to enrich society. Entrepreneurship = creativity + innovation 2. What contributions does entrepreneurship have for the economic development of the country? Increasing the per capital output and income of the people of the country. Initiating and creating change in the structure of business and society. Generation of innovation that leads to the creation of new products and services. Improvisation and modification on existing product to better suit market and customers needs. Creation of self-employment and to cut back the dependency of potential employment of new workers in government sectors. Streamline of the private sector and encourage the inclusion of new technology that is less labor dependent. Increase in the national outputs which in turn lead to greater and stronger economic growth. Laying the seed bed for creating new entrepreneurs in various new technologies Acting as a catalyst to nurture entrepreneurs in a business organization 3. Can entrepreneurship be a career option? The entrepreneurship option prepares students for an entrepreneurial career by offering a combination of coursework and practical experience. The required coursework lays out the fundamentals of entrepreneurship including the necessary tools and perspectives in strategy, marketing, and finance. We may define entrepreneurship as a career in your own business [YOB] rather than wage employment [JOB] .If you opt for a job then you will work for others. In case you opt for entrepreneurship you will be your own boss. In case of wage employment one is engaged in routine work carried on for others for which he receives salary or wages.. 4. What are the major causes for failure of most small business? Poor operations management Lack of experience Poor financial management Over-investing in fixed assets Poor credit practices Failure to plan Unplanned and uncontrolled growth Inappropriate location 5. How can the small business owner avoid the common pitfalls that lead to business failure? Knowing the business in depth Developing a solid business plan Managing financial resources Understanding financial statements Learning to manage people effectively 6. What crucial roles do you think from the well managed small business? Independence Financial Opportunities Community Service Job Security Family Employment Learning from Challenge

 Introducing Innovation Catering for small or niche markets 7. What do you understand by the term business opportunity? What is its relevance for an entrepreneur? The entrepreneurial process begins with identifying an opportunity and evaluating it through an initial screening process. If it appears reasonable, a detailed business plan can be made. If not it can be discarded. 8. Do you think it is important for an entrepreneur to scan for opportunities in the small scale sectors? Give reasons. This will help to put the proposed venture in the proper context. The purpose of industry analysis is to determine what makes an industry attractive- this is usually indicated either by above normal profits or high growth rates. For such analysis one should study the history of the industry, the future trends, new products developed in the industry, forecasts made by the government or the industry. It is also advisable to study the existing or potential competition, threat of substitutes and entry barriers. 9. In your opinion what precautions should a potential entrepreneur take at the Idea Generation Stage in an ever-changing business environment? It is a true statement as the business environment is constantly changing for any number of reasons. There can be technological break thorough like the IT revolution, demographic changes like nuclear families, working parents, which have fueled a demand for day care centers, old peoples homes, fast food etc. Changes in tastes and preferences have resulted in mushrooming of restaurants and designer clothes. A natural disaster can create a demand for tents, blankets, medicines, torches, food etc. 10. What are the important facets of a project feasibility study? Market Analysis Financial Analysis Technical Analysis Economic Analysis Ecological Analysis Legal and Administrative Analysis 11. What factors are to be kept in mind while deciding on product/service? It is necessary to know beforehand Whether there exists a sizeable market for the proposed product/service, What would be the investment requirements and where to get the funding from? Whether and wherefrom the necessary technical know-how to convert the idea into a tangible product may be available, and so on. 12. Describe the various forms of business organization? Sole Proprietorship-The vast majority of small businesses start out as sole proprietorships. These firms are owned by one person, usually the individual who has day-to-day responsibility for running the business. Sole proprietorships own all the assets of the business and the profits generated by it. Partnerships-In a Partnership, two or more people share ownership of a single business. Like proprietorships, the law does not distinguish between the business and its owners.

Corporations A Corporation, chartered by the state in which it is headquartered, is considered by law to be a unique entity, separate and apart from those who own it. A Corporation can be taxed; it can be sued; it can enter into contractual agreements. The owners of a corporation are its shareholders 13. Explain legal considerations in the establishment of a small scale enterprise? Prepare a business plan. A properly written business plan will serve not only as a blueprint for your company's future operations, but will be pivotal to obtaining capital and financing. Choose a location to set up your business. While the first thought may be to organize your business in your home state, there are certain advantages to organizing in other jurisdictions. Delaware is a popular state given its favorable corporate laws. There are even reasons to consider incorporating overseas. Obtain financing or other forms of startup capital. Determine a legal structure for your business. Sometimes an S corps is the way to go, other times an LLC or a partnership. There are multiple forms of business entities and they vary slightly by state. Each will have different tax implications, different forms of business governance, and varying legal and procedural requirements. Register your business. Once you have selected the form of legal structure, you will need to register your company with the jurisdiction you choose. You will also need to renew that registration each year to ensure that your company remains legally in existence. Obtain a Tax ID. One of the most important steps to establishing a company is obtaining a tax ID from the IRS. This is an integral step to creating the separate identify of the business entity, establishing its separate taxation, and activating the tax benefits of the chosen form of business entity. Obtain business licenses and permits. Most businesses will need to obtain a license to legally operate in its given place of business from the local municipality. Failing to do so could result in fines or other penalties. 14. What is business plan? Write the importance of business plan for the entrepreneur, financial sources and customers. Business Plan is a written document describing all relevant internal and external elements and strategies for starting a new venture. For entrepreneur the time, effort, research, and discipline needed to put together a formal business plan force the entrepreneur to view the venture critically and objectively. All aspects of the business venture must be addressed in the plane; the entrepreneur develops and examines operating strategies and expected results for outside evaluators. The business plan quantifies objectives, providing measurable benchmarks for comparing forecasts with actual results. The completed business plan provides the entrepreneur with a communication tool for outside financial sources as well as an operational tool for guiding the venture towards success. For the financial sources Details of the market potential and plans for securing a share of that market. The ventures ability to service debt or provide an adequate return on equity. Critical risks and crucial events with a discussion of contingency plans. A clear, concise document that contains the necessary information for a thorough business and financial evaluation of the feasibility of the new venture.

15. Discuss the pitfalls to avoid in planning and their respective solutions. Pitfall 1: No Realistic Goals -Indicators: lack of attainable goals, time frame, priorities and action steps Pitfall 2: Failure to Anticipate Roadblocks: Indicators: no recognition of future problems, no admission of possible weaknesses of the plan, no contingency plans Pitfall 3: No Commitment or Dedication- Indicators: excessive procrastination, missed appointments, no desire to invest personal money Pitfall 4: Lack of Demonstrated Experience (Business or Technical)Indicators: no experience in business, no experience in specific area of the venture, not understanding the industry. Pitfall 5: No Market Segment- Indicators: uncertainty regarding who will buy, no proof of unsatisfied need 7. List and describe the different elements of a business plan. 16. Executive Summary: Within the overall outline of the business plan, the executive summary will follow the title page. The summary should tell the reader what you want. This is very important. Clearly state what you're asking for in the summary. The statement should be kept short and businesslike. It should be kept to a of a page to 1 full-page depending on how complicated the use of funds may be. Within that space, you'll need to provide a synopsis of your entire business plan. 2. Market Analysis: This section should illustrate your knowledge about the particular industry your business is in. A market analysis forces the entrepreneur to become familiar with all aspects of the market so that the target market can be defined and the company can be positioned in order to collect its share of sales. A market analysis also enables the entrepreneur to establish pricing, distribution and marketing strategies that will allow the company to become profitable within a competitive environment. In addition, it gives one an indication of the growth potential within the industry, and this will allow you to develop your own estimates for the future. Begin your market analysis by defining the market in terms of size, structure, growth prospects, trends and sales potential. 3. Company Description: This section should include a high level look at how all of the different elements of your business fit together. The company description should include information about the nature of your business as well as the crucial factors that you believe will make your business a success. 4. Organization and Management: This section includes your company's organizational structure, details about the ownership of your company, descriptions of your management team and qualifications of your panel of experts or board of directors. 5. Marketing and Sales Strategies: This is the lifeblood of your business. Marketing creates customers and customers generate sales. In this section, define your marketing strategies. Start with strategies, tactics and channels that you have used to create your greatest successes. Next, branch out to others that may be working for your competitors. Remember that this section will be constantly updated based on your results. 6. Service and/or Product Line: In this section describe your service and product. What is it that you are actually selling? Make sure to emphasize the benefits (not the features). Establish your unique selling proposition. This means you have to show not only how your product is different but also why it is better.

7. Funding Requirements: In this section state the amount of funding you will need to start or expand your business. Include best and worst case scenarios. Be realistic. 8. Financials: Develop the financials AFTER you have analyzed the market and set clear objectives. You should include three to five years of historical data. CASE STUDY QUESTION AND ANSWERS Case Study 1: Alton Towers Alton Towers was voted the UKs number one theme park agai n this year. It is located in the heart of England in Staffordshire, where there is easy access from both the M1 and M6, although access through the village of Alton towards the site is difficult. The roads are narrow and there are twisting bends, which coaches find difficult to man oeuvre round. The site evolved from being a traditional English garden attraction in the 1950s to an exciting leisure park after a company decision was made in the 1980s to convert the gardens to an American-style theme park. The aim was to attract more visitors. The idea was a success and over the years the park has been constantly updated with increasingly bigger and more exciting rides and spectacular attractions. Alton Towers set out to be the market leader from the beginning. It boasts the best attractions in the UK. It was the first to have the largest flume in the world in 1982. The company was taken over by the Tussauds Group in 1990. Changes were made to existing attractions and layout of the park. Other changes included a short walk towards Thunder Valley, leading to the Haunted House. In 1994 the most spectacular ride ever seen in the UK was introduced. This was Nemesis an inverted roller coaster. The thrilling suspended ride Oblivion was opened in 1998. This is a vertical drop roller coaster. The latest addition to the park in 2000 is the Hex the legend of the Towers. This is a disorientating haunted swing. These white-knuckle rides are now located in the X-Sector. In 1996 a 10m themed hotel on the outskirts of the park was opened. Participants in the Haunted House and X-Sector rides are photographed as they take part. These photographs are ready for viewing and purchasing at the end of the rides. There is an admission charge to the park, but once inside the park all the rides and attractions are free. Ticket prices are differentiated and include Peak and Off-Peak, Day Tickets, Family Tickets and Season Tickets. Visitors to the park can choose to eat at a variety of restaurants dotted all over the park. Each ride has its own souvenir shop attached and there are also gift shops where Alton Towers merchandise can be purchased at prices to suit all pockets. Alton Towers is open every day to visitors from around 24 March until 31 October each year. Every year 2.7 million visitors visit the park. The volume of visitors in the summer means that long queues can form, although a ticket reservation process is in operation for the most popular rides. Alton Towers is not seeking to increase the number of visitors passing through the gates,

but to encourage people to spend more on food and merchandise and to come back again.

They could make safety a main feature for any future rides, and advertise this fact. 9. Alton Towers selling on the internet more opportunity for extra sales. 10. Customers now prefer purchasing online more convenient etc. Case Study 2: The Royal Mail Processing Centre, Edinburgh The Royal Mail is part of the Post Office Group. The Post Office is a public corporation. The Royal Mail is responsible for providing the postal service in the United Kingdom. The Royal Mail operates one of the cheapest and most efficient postal services in Europe. A major reason for this is because in 1997 it invested 200m in computerised sorting machinery. The Royal Mail Processing Centre in Edinburgh is one example of the investment that has been made. Letters and packets posted throughout the south-eastern part of Scotland are collected and taken to The Royal Mail Processing Centre. It is responsible for ensuring that the letters and packets are processed. This processing involves sorting the letters and packets so that they can be delivered. The Royal Mail Processing Centre is a state of the art operation, equipped to handle between three and four million letters and packets daily. The Centres responsibility also covers quality assurance and customer liaison. The target for first class mail is delivery the next day. For second class mail the target is delivery within two days. The use of information technology is vitally important to the efficiency of operations within the Royal Mail Processing Centre. The Centre uses a combination of computerised machinery, specialist database software, Optical Character Reader equipment, networked personal computers and video-coding equipment. The process of dealing with incoming letters and packets has three stages: Stage 1 cancelling (CFC) Stage 2 coding (MTT) Stage 3 sorting (LSM). Stage 1: CFC process There are five CFC machines at the Mail Centre. The mail is loaded into machines and they automatically face the envelopes (i.e. turn them face upwards) and cancel the stamps. The mail is then tumbled onto a conveyor belt for the next stage of the process. Each machine handles 30,000 items an hour. If this process were carried out manually each person would only process 1,000 letters or packets per hour. Stage 2: MTT process The mail is guided along the conveyor belt past an optical character reader (OCR). This OCR reads the postcode and puts a red barcode (of the postcode) on the envelope. The barcode is read by the Letter Sorting Machine at the next stage in the process. If the OCR cannot read a postcode on a letter or packet, the postcode is copied and transferred as an image to a video-coding area located elsewhere in the building. In the video-coding area, specialist operators work on networked personal computers. The operators receive the image of the postcode and they use a specialist database (called a postcode address file) to code the images. The images are then sent back for bar-coding. The mail involved can then be included with the rest of the mail. The operators in the video-coding area process at least 1,750 images an hour.

Alton Towers: questions 1. (A) Alton Towers set out to be the market leader. Explain what this means. (2) (b)What evidence is given in the case study to suggest Alton Towers is achieving its objective of being market leader? (1) 2.(a)State two advantages Alton Towers gained by being part of the Tussauds group? (2) (b)Name one other Tussauds attraction. (1) 3. Explain how Alton Towers kept ahead of the competition in the years from 1982 until present(2) 4. Explain the benefits to Alton Towers of having restaurants and souvenir shops dotted around the site? (3) 5. Why does Alton Towers use differentiated prices for their admission tickets? (3) 6. Explain how Alton Towers can use field research and desk research to find out if they are achieving their objectives.(4) 7. Lately there has been a lot of adverse publicity in the press concerning accidents on white-knuckle rides on the Pleasure Beach, Black pool. Do you think this adverse publicity could have an effect on Alton Towers Theme Park? Explain your answer.3) 8. Give two examples of how Alton Towers can promote itself as a safe park to visit. (2) 9. State one advantage for Alton Towers of selling tickets on the internet. (1) 10.Give one advantage for customers of purchasing tickets on the internet. (1).(25) Alton Towers: suggested solutions 1. (A) Market leader keeping ahead of the competition, first with ideas, etc. (b)Biggest attraction in UK and largest flume in 1982. 2. (A) Access to more finance, access to more marketing expertise. (b)Madame Tussauds Waxwork Museum. 3. Years 1982 present by introducing more exciting rides e.g. largest flume (1982), Nemesis (1994), Oblivion (1998), Hex (2000) and themed hotel in 1996. 4. by diversifying into shops and restaurants Alton Towers will generate more profits, souvenirs reinforce brand name, restaurants all around the park prevents queues and customers having to walk far. 5. Prices are differentiated to encourage visitors to the site on less busy days; to encourage families to come; to offer promotional prices for certain days that may be less busy. 6. Field research questionnaires can be given to visitors to hand in or send back, visitors can be asked questions by researchers going round park. Desk research information about new rides can be gathered from suppliers/designers. Information can be collected regarding other theme parks (globally). 7. Adverse publicity could have a knock on effect on Alton Towers. People might feel that white-knuckle rides are all dangerous. This could result in fewer visitors to the park. 8. Alton Towers can promote itself as a safe park to visit by focusing on its safety record over the years, and any safety certificates they have obtained.

Stage 3: LSM process This stage of the process reads the barcodes and sorts the mail into individual postman/womans rounds (called walksorts). The sorted mail then comes off the machines and goes into upright trolleys. These trolleys can then be despatched to delivery offices. When it arrives, it is ready for delivery. Incidentally, the walksorts are compiled by a specialist software database program which can make them up in approximately two days. The manual system previously used took 6 weeks from start to finish. The Royal Mail Processing Centre, Edinburgh: questions 1.The Post Office is a public corporation. What does the term public corporation mean? (1) 2.(a)Describe two internal stakeholders in the Post Office. (2) (b)Describe two external stakeholders in the Post Office. (2) 3. Explain one objective that the Post Office may have. (2) 4. The Royal Mail Processing Centre is an example of flow production. (a)Explain why the Centre is an example of flow production. (1) (b)Why is sorting letters and packets suitable for flow production? (2) (c)Give another example of flow production (1) 5. The Royal Mail uses a specialist database containing postcodes. (a) Explain what a database is. (1) (b) Describe two other ways in which databases could be used in business (4) 6. Describe three costs and three benefits of using information technology at the Royal Mail Processing Centre. (6) 7. Explain how the individual postman/womans rounds have been affected by technology?(2)(25) The Royal Mail Processing Centre, Edinburgh: suggested solutions 1. A public corporation is part of the public sector. It is owned and financed by the government. 2. (a) Possible internal stakeholders could be employees (e.g. machine operators who depend on the company for wages etc.); managers (who supervise the processing and make decisions about investment etc.); trade unions (who represent workers and negotiate pay and conditions on their behalf). (b)Possible external stakeholders could be the government (who puts up the money and expects it to be used well); taxpayers (who expect to see their money being properly used); customers (who wish an efficient value for money service). 3.Possible objectives include providing a cheap and efficient service to customers (many customers will be taxpayers and, as a public corporation, quality of service is very important to the Post Office); covering costs (public corporations do not have to earn profits but the Post Office must not lose money and must ensure it has funds for investment). 4.(a)This is an example of flow production because a large number of items are processed in the same way on an assembly line system in this case a conveyor belt. (b)The items are standard (i.e. letters); the tasks involved are routine and easily broken down into component parts; the same processes have to be carried out for each letter or packet; it is possible to identify problems (e.g. letters with unclear postcodes); a large volume of items must be processed;

items must be processed quickly. Effectively, this is the equivalent of mass production for mass consumption. (c)Examples could include any product manufacturing process involving an assembly line, for example, cars; electronic goods; food manufacture; brewery bottling plant. 5.(a)A database is an electronic filing system which carries information on a large number of items. (b)Databases could be used in business as follows: Employee records in this way it is easy to find out information on age, training, salary level, years of service and so on. Customer records this can be used for marketing purposes for example, a mail shot; market research (who buys what), and so on. Designs where business uses a number of different designs for products, information on components, etc, can be held on a database. Stock records stocks can be kept on a database for example, part numbers etc, and employees can find out what is in stock at any time. 6. Costs initial costs of installation/maintenance costs, breakdown costs, training costs for operators, etc. Benefits increased productivity, less waste, improvement in working environment etc. 7. Walk sorts for postmen and postwomen are made up using a specialist software database program. These can be made up in two days instead of the manual system of six weeks. This may mean that routes change quickly depending on volume of mail. Postman and women may have to become accustomed to changes of route. Case Study 3: Soled Out? Background T-Sole Ltd produce fashion boots and industrial footwear, which are sold under the brand name of MDs. This footwear brand can only be bought in specialist retail outlets throughout the UK or from their own shop, which is situated in the heart of London. During the mid 1980s to the mid 1990s the company achieved huge successes. Their footwear range was particularly popular with the student segment of the market, because of their durability. Sales to other segments of the market were also increasing, as were their profits. The managers of the company decided to expand their factory to cope with this increased demand, which also meant doubling their workforce. The present situation Their factory is situated in a rural area approximately 200 miles from their London store. New employees were recruited from the locality and are given one days training in the production process when they first started. Management introduced a piecework rate, which means employees are paid for each item of footwear they produce. The managers believed this system is an incentive to increasing productivity. However, the new recruits made many mistakes and a lot of the footwear produced had to be rejected. The experienced workers started rushing their work in order to increase their wages and this led to an increased number of consumer complaints regarding faulty or poor quality goods. Added to this was the increased competition from trainer manufacturers. The MDs brand saw its sales

figures drop by 50 per cent within three years, which was a huge loss of market share.

Two-thirds of the workforce has now been made redundant. Those remaining feel very insecure and are unhappy with their current working conditions. Production has been limited, which means they are losing out on wages. The equipment they use is constantly breaking down, leading to further time lost for which they are not being paid. The remaining workers have asked the management to change their payment system to a guaranteed weekly wage for the hours they work. They have threatened to withdraw their labour if conditions do not improve. Options for the future The managers of T-Sole Ltd have discussed the following options. 1. Change the payment system for the employees and improve maintenance procedures on the machinery. This would eat into their already reduced profits and would not be popular with the shareholders. 2. Keep the present payment system for the employees and instead move into the casual footwear range and hope that the employees will accept the change. This would involve some modification and upgrading of existing machinery. Finance could be a problem. 3. Have a combination of both options. Give the employees a guaranteed wage and diversify into the casual footwear market. After careful consideration the management chooses Option 3. Soled Out?: questions 1. Challenges for business can come from internal and/or external pressures. Explain two such pressures affecting the current situation of T-Sole Ltd. (4) 2. Explain the stages in the product life cycle of the MDs footwear brand and state which stage it is now at. (8) 3. Employee relations at T-Sole Ltd suffered because of the new payment system. Explain what the Human Resources Department of T-Sole Ltd could have done to avoid these problems. (4) 4. In todays competitive markets quality products are extremely important. Explain what measures T-Sole Ltd could have introduced to ensure a high quality product reached the consumer. (4)(20) Soled Out?: suggested solutions 1. Internal pressures could include: Workforce unwilling to continue with present working conditions. Lack of training in making casual footwear. Lack of finance to adapt existing machinery/buy new machinery. Existing shareholders who will have reduced dividends. External pressures could include: Market is already near saturation lots of competition. Political e.g. introduction of the minimum wage (i.e. laws protecting people at work). Economic any change to interest rates could affect loan repayments of machinery/factory etc.

Social changing attitudes to pollution/green issues/animal rights e.g. ensuring it is only man made fibres used in production. Technical -use of the internet for faster communications, etc. 2. Product Life Cycle Development/introduction product is being designed Introduction when product is new on market. Sales are usually low at this stage. Length of stage varies according to product. Growth product is becoming established Consumers are more aware of its existence. Sales start to increase as more consumers buy it. Product starts to make a profit. Maturity/saturation product has become fully established Sales are at a maximum. Product has a huge market share. No more sales growth possible unless product changed in some way. Decline sales start to decline possibly because of more competition Product is no longer required by consumers. Product is forced out of the market. MDs is in the decline stage. 3.The human resources department could have: prepared job descriptions (specifications) for the organization prepared person specifications used these to match to the job description offered more than one days training perhaps an induction training to emphasize the culture of the organization used a better system of remuneration to ensure all employees were paid fairly had a better system for the whole recruitment and selection process introduced a staff appraisal system emphasizing how this could help promotion/pay etc introduced a formal grievance and discipline procedure 4. Measures to ensure quality: Introduce a quality control programme. Introduce Total Quality Management system (if student says TQM without expansion, only give mark). Monitor the production process at each stage to eliminate substandard goods. Give the workers more responsibility for ensuring quality/solving production problems. Introduce quality circles. Investigate how your competitors maintain quality (benchmarking). Case Study 4: Border Tweed to Border Tead Background Sandy and Gillian have been happily married for just over seven years. They met eight years ago at a textile factory in Hawick, where they both started work after leaving school. The textile factory was the biggest employer in the area. During these years they saved hard and finally bought their dream house a four-bedroom detached traditional bungalow. The house needed upgrading, so the couple managed to get it at a bargain price. They put down a good

deposit and took a mortgage for 60,000. They were looking forward to renovating the house over time. The present situation The textile trade was the main industry in the Scottish Borders. In the past few years, however, factors such as high prices for cashmere wool and declining orders from Japan and America have led to short-time working and some redundancies within the industry. Last year Sandy and Gillian were both made redundant at the same time. Faced with the prospect of moving away to find work or being unemployed, they decided they would start up their own business. They would run a Bed and Breakfast guesthouse. The Scottish Borders is a popular tourist area and the couple lived in a very beautiful spot. It was also on the main route for travellers to both sides of the border. They decided to use their redundancy money to upgrade the accommodation immediately to the required standard. Sandy and Gillian know nothing about running a business. They are hoping to find some useful information on running a Bed and Breakfast business and whether there are any government grants available to help them get started. Sandy arranged a meeting with the bank manager to have a talk about their new business. They would need a new business account and help in preparing a business plan. The couple are aware of the importance of information technology to help them run their business. They have set aside 2,000 for a new computer, any software they might need and a good quality printer. They have decided what tasks each of them will be responsible for. Sandy will look after the accounts and negotiate any grants that may be available for the business. Gillian has agreed to look after bookings, customer correspondence and promotional material, including design of leaflets and business cards for the business. They have read a lot about advertising businesses on the internet and think this would offer a lot of opportunity for their Bed and Breakfast business. Border Tweed to Border Tead: questions 1. (A) Suggest the most suitable type of business organisation for Sandy and Gillian to set up. Give reasons for your answer. (4) (b)Identify a possible external stakeholder in their business. State what interest that stakeholder would have (2) 2. Describe two useful sources of information that would help Sandy and Gillian find out if their venture would be successful. (4) 3. (a) Give two reasons why an IT training course would benefit Sandy and Gillian.(2) (b)Describe two ways they could use the internet to support their business. (2) 4. Sandy has agreed to be responsible for the business accounts. Explain why financial planning and maintaining financial records are essential for business survival. (5) 5. Gillian has agreed to look after the marketing aspect of the business. Explain the importance of the marketing mix to a business such as Sandy and Gillians.(6) (25) Border Tweed to Border Tead: suggested solutions 1. (A) Partnership relatively easy to set up share of ideas

specialist skills of each partner cover for illness/holidays business affairs can be kept private Private Limited Company Limited liability easier to raise capital does not need to be dissolved if owner dies (b)The bank they would want to establish profitability levels to ensure any loans could be repaid. Suppliers they would want to make sure they were paid promptly for their supplies. Local community they would want to make sure there was no additional noise, pollution or traffic congestion in the area around the business. 2.Primary (field) information gathering the information directly for their own purposes e.g. market research information on competitors pricing, market share, advertising media successes, etc. Secondary (desk) information using existing sources of information e.g. trade association journals, government statistics on consumer spending, reports in the newspapers, advice from a local enterprise company etc. 3(a) They will gain understanding and confidence is using the equipment and software packages. They can use it to produce letters, invoices, advertising flyers and notices, prepare accounts and budgets, etc. (b)They could: have an email address for customers to send bookings produce their own web page to advertise their guesthouse web page will show pictures of rooms, show prices charged etc find out information about competitors, suppliers, etc. 4. Financial planning and maintaining financial records are essential because they: ensure there is enough cash coming in to cover day-to-day costs help with making good business decisions can help plan future strategies are used to measure the performance of the business are used to establish the profitability of the business. are used to prepare p/l account and balance sheet can help monitor and control costs, etc. 5. The marketing mix is important for the following reasons: It consists of the 4Ps: product, price, promotion and place. A combination of all four will help sell their service. You must create a successful mix of the four. Its about the right product or service sold at the right price in the right place using the most suitable promotion. These four ingredients are needed to meet the aim of the business. At different stages, depending on circumstances, you will need to alter the mix. A marketing mix can be designed to suit the specific requirements of the market situation. An optimum marketing mix can increase profitability. It is a technique (process) used by businesses to make consumers aware of their product/service.