RESPOND QUICK... OR PERISH!

It is said that John F. Kennedy was America’s first television President. Barack Obama has shown that he is the nation’s first ‘Social Media’ President!

The super fast advancements in technology and the growth of the internet have changed the marketing landscape totally. Its impact was seen the most in the Presidential campaigns of Obama and Romney. This time, Obama’s campaign strategies were totally different from the ones he used in 2008. Yes, he once again used social media, but he used it more scientifically. This time, he had a huge team of ‘boffins’ (data analysts) headed by a new ‘Chief Scientist’ Rayid Ghani, whose job was to scientifically analyze all the data and use it to plan Obama’s various marketing strategies. For example, the team found out that in 2008, it had used the “Sign up now” button to gather followers on Facebook; but changing it to “Learn more” was far more effective in getting people to register in 2012. Each plan was tested, retested, analyzed and then implemented. A huge team of data analysts holed up in what was nicknamed ‘The Cave’ sat day in and day out crunching numbers and planning each move. That was the secret to Obama’s success.

The social media landscape is, after all, more cluttered and much different now than it was four years ago; so this time, it needed to be handled differently too. Obama showed us the most effective way of handling it.

RESPOND TO THE CONSUMER

The consumer talks to you in many different ways, and the most successful marketer is one who listens most intently. Today, most marketers do listen to their consumers, but the ones who can respond the fastest will win in the future. This is the new rule of the game. This is also called ‘adaptive marketing’, and both Obama and Romney showed the corporate world how to adapt real fast.

Every aspect of your marketing campaign has to learn to ‘adapt’. Nothing can be static, not even ad campaigns. If Romney got a reaction from the audience for a particular point during his speech, that point was turned into a small online video ad spot soon enough. If an online ad got a positive response from the viewers, it was soon made into a newspaper ad. Gone are the days when past experience, intuition and creativity decided your advertising strategies and media buying plans. With so much clutter in the market place, you need to have the ability to gather all possible data about your consumer, analyze it and use it to plan your move; and most importantly, change your move according to the changes in the preferences of your consumer. Obama’s team sitting in ‘The Cave’ used to process the data and run it through 66,000 computer simulations every night to figure out Obama’s chances of winning in the swing states. The next morning, the results were used to help him plan his next move, in fact his every move. Like for example, a study of old data collected for Obama’s campaign revealed that in the West Coast, George Clooney was the man who attracted the women in the age group of 40-49 the most. That was also the group that was rich and most able to donate. So a promotional event ‘Chance to dine in Hollywood with Clooney’ was created. In the East Coast, it was Sarah Jessica Parker who would work, so the next Dinner with Barack contest was born: a chance to eat at Parker’s West Village brownstone!

Media, too, was bought on the basis of data analysis. TV ads were planned according to the potential voters’ ‘browser history’. When you surf the internet, you leave a history and data miners are using this to know you better, figure out which TV programmes you are most likely to watch and put their ads there. So this time, Obama’s political ads were not only aired on news channels (as has been the case with political ads all these years); rather, you saw him on Discovery Channel on programmes like “The Walking Dead’, et al. Barack was there where his voters were (there were no Romney ads here incidentally!).

Campaigns of the future will be planned keeping in mind the likes of the consumers. Amazon does it. It knows the books that you have bought or browsed through and it sends you suggestions on what is new and of interest to you. KLM Airlines now offers a unique feature wherein travelers can decide who they want to sit next to by linking their Facebook profiles to your flight.

With technology advancing so much thanks to the mobiles, the tablets and the smart TVs, it’s become easy to know your customers. In fact, a recent study in UK revealed that 75% of consumers who had a relationship with the company were happy to share their personal information with it, for it made their lives easier. Everyday, he is daunted with zillions of options. If someone could pick out a few that suited him the best, the consumer would appreciate it.

Soon, we would be in an era of ‘IP-addressable TV sets’, and advertisers would be showing us ads of only those products that we are interested in (after analyzing our browser history!)! As our interests would change, so would the ads we see! Soon, campaign planners would know us better than us!!

So the brand, which can get the maximum data about its consumers and analyze it best, would be the most successful brand in the future. The brand, which responds the fastest to consumer opinions, is the one that is most likely to succeed.

Respond to consumers yet again

Apart from understanding your consumers’ likes and dislikes and responding to them by customizing your marketing strategies, brands have to also find more and more ways to engage with their customers and talk to them first hand. The growth of social networking sites has made this most imperative. When these sites started, they gave marketers an opportunity to connect to their consumers (through Twitter, Facebook et al). Today, many brands are connecting with their buyers through these sites, but very few are engaging them. Even fewer are listening to them and responding back. Walmart is one such company, which maintains a keen vigilance on the social networking websites. Once a consumer tweeted, “Sold Out@Target we want more @Boss_Starz Season1DVDs”. Walmart replied to the disgruntled customer, “Hi Nicole-@Boss_Starz fans can pick up Season One online here: bit.ly/MJ9F6c or at their local Walmart.” The consumer had a problem with the department store Target and Walmart saw this as an opportunity to win some brownie points and simultaneously get the competitor’s consumer to visit its store.

This year, Coca-Cola became the first retail brand to pass the 50 million mark in terms of Facebook fans. Coke has been working quietly towards increasing its presence on social networking sites; for it believes in the simple rule that its Senior Vice President, Integrated Marketing, stated, “Fans are twice as likely to consume and 10 times more likely to purchase than non-fans.” Coke considers these social networking sites as ‘social telephones’, and they seldom let them go unanswered, which is why their ‘customer service strategy’ has changed. Today, Coke has increased the number of employees in its ‘Twitter Response Team’ and reduced the team strength of its ‘tele-calling team’. Coke has recently launched a new white packaging for its product and it’s using this to engage its vast community on Facebook. It’s asking them to send in ideas on how to save the Arctic and polar bears. These companies have mastered the art of responding to consumers and interacting with potential consumers in a way so that their loyalty towards their brand increases.

A research done by Maritz Research Company revealed that a whole lot of companies are active on Twitter, giving information about their products, new launches and new services; but very few ‘respond’ to their customers. The research also brought out an interesting fact that 49% of those surveyed said that they expected the company to read their tweets and respond to them. The older the respondent was, the more they expected the company to respond to them. Out of those who did receive a response from the company, around 83% said they loved it. So if you are not responding, you might be losing out your customers to competitors.

Wars were fought in the battlefields decades ago, and then they were fought in retail outlets. However, in future, wars will be fought in the virtual world. The one who masters the art of interacting with his customers and of engaging his customers in a dialogue is the one who will win.

In a nutshell, marketing today is not just about the 4Ps – Price, Product, Place & Promotion – rather, it’s about the new 4Ps with the customer in focus.

Permission – to talk to you (customer)

Perception – understanding what you want.

Proximity – designing strategies and customizing them to suit you.

Participation – involving you in as many ways as possible.

You will now have to keep these 4Ps in mind while formulating your marketing strategies. The social media is changing us, our lives and our marketing theories too. Move with the times and the times demand that you connect well with your customer and most importantly, respond quickly… or else perish!

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BOOTSTRAP YOUR WAY TO SUCCESS!

The term ‘bootstrapping’ is an interesting term. It has a lot of challenge, a lot of drama built into it.

The term is attributed to a story written by Rudolf Erich. The story titled The Surprising Adventures of Baron Munchausen is based on a series of tales narrated by the Baron about his travels, with some impossible feats and daring escapes. One such tale is about him pulling himself out of a swamp with the help of his bootstraps as there was no one to help him and there was no other way he could have survived. Today, this 18th century tale has acquired a new meaning; especially for entrepreneurs. The idiom “pull yourself up by your bootstraps” is the secret behind the success of many people today. When all else failed, they looked at the end of their own arm and found a helping hand! Just the way when the Baron fell in the swamp and nothing seemed to work and it looked like all was lost, he thought of picking himself up by his own bootstraps.

This little boy used to walk barefoot to school. He used to sit on the floor in the classroom, as he was not allowed to sit on the desk; neither could he enter the temple of his village, for he was considered ‘unclean’ because he belonged to a lower caste. Ashok Khade is today a multi-millionaire who has Arabs as his business partners. A poor cobbler’s son, he had no money. He could barely finish his college and in spite of being a good student, he had to drop out and take up a job as an apprentice draftsman at the Mazagon Dock. His dreams of becoming a doctor were shattered, but he continued to work hard and became the best draftsman in the company. One day, his boss sent him to Germany for work. There, he chanced to see the paychecks of the Germans and was shocked to find how much they made in a month. This motivated him to work harder.

When everyone refused to help him, he decided to pull himself up by his own bootstraps and do something different. He worked hard; and at the right time, he started his own small company… something that was unthinkable at that time, when no one thought of leaving a steady job and taking this huge risk. It paid off and he soon got his first contract and then his second; and today, he has his own business empire, and his own voice. He organizes seminars where businessmen of his community (Dalit) give advice to companies like Tata Motors. He even persuades the government to give contracting preferences to Dalits, and the private companies to create job opportunities for people of his community.

BOOTSTRAP OR GET THE BOOT

Success in entrepreneurship has a lot to do with strategic planning. The most important planning is the one related to finances. Smart financial management is one of the most important keys to success.

Bootstrap basically refers to growing a business organically with little initial investment. It is a challenging and interesting option as it forces you to think creatively and figure out a business model that works and actually generates revenues for you. Consider the story of this 17 year old boy who left Durgapur, just after his class 12 board exams, because his mother could feed him no more. Hunger drove him to Mumbai where he did any odd job he could find. He then got a job as a courier boy in a pharma company. When the drive to achieve something is high, a man can find opportunities anywhere. Sudip Dutta, the little boy, spent his evenings in the same company learning how to make the pouches that the pharma company used to pack its medicines in. It brought him Rs.15 extra. He had no money, so he worked day and night and slept in the factory itself. Two years later, the factory owner sunk under debt and decided to sell the factory. The ‘bootstrapping’ entrepreneur inside Dutta saw this as an opportunity of a lifetime and he went to negotiate with his owner. He had no money in the bank, but only his hard work to bank on. He came up with an intelligent option. He told the owners to sell the business to him and he would pay them back in installments. The deal was that he would give them all the profits he earned from the business after he had deducted the workers salaries and Rs.5,000 for himself. The owner saw it as a win-win option and agreed. Within 2 years, Sudip had made the company debt-free and today, it’s a whopping Rs.700 crore business. He named his company Ess Dee Aluminum, which are the initials of his name. Today, Dutta is the undisputed leader of the aluminum foil business. He still loves his ‘pantha bhat’ and never forgets where he came from – a quality that makes each of these ‘bootstrapping businessmen’ so successful. Not only do they retain their humility, not only do they find creative ways of doing things, but they also learn to never ever give up.

Lakshaman belonged to a family of farmers, where his father used to make money by sharing in the produce of the farmers. However, the old-fashioned farm implements made life very tough and profits very less. It used to take two months to separate the grain from the chaff using bullocks; and many a time, rain used to spoil the crops. He used to hear his father cry in the nights and it pained him. He wanted to change things, but there was no money to invest. There was no money for anything in fact. Lakshaman had weak eyesight, but could not afford to buy spectacles. That did not deter him from studying. He used to sit as close to the black board as possible. His teachers rebuked him, but nothing mattered as his will to succeed made him overcome all obstacles. One day, he and his friend chanced to see a Japanese rice-thresher machine and decided to develop a wheat thresher on the same lines. Young Lakshaman convinced his family to put in all their money into making the wheat-thresher, as it would help in quick threshing of the wheat.

 

The machine failed; The family was bankrupt. The machine found few takers. Not one to give up easily, he reworked on the machine and found that instead of ‘round cutters’ they had used ‘straight cutters’. The design was changed... and it worked. But all this also gave the young boy an idea to start a new business of ‘farm implements’. Within a few years, he was making tractors; and today, his company ‘Sonalika Group’ is worth $785 million. And this year, in 2012, Lakshaman Mittal was ranked as the 75th richest man in the Forbes’ Indian Billionaires list.

Bootstrap entrepreneurs learn to make the most of each penny, and get the returns

to the fullest. They care not for adversaries but they do have the uncanny knack of spotting an opportunity even in the most adverse of situations.

BOOTSTRAP AND CUT OUT THE CRAP

When you don’t have enough or rather when you have nothing at all, you learn to focus only on the essential and cut out the things that don’t matter. It was in 2005 that Sridhar Vembu decided to challenge software biggies like Google and Microsoft with the help of his ‘bootstrap ideas’.

In 1995, this IIT graduate went looking for venture capitalists who would fund his business plan of making a software for telecom networks. No one was interested, but he did not give up and bootstrapped his operations, and started a small company in Silicon Valley. He soon started ‘Zoho’, which is a series of web-based programs. His success point is his bootstrapping philosophy i.e. of keeping costs very low and hence being able to sell his software at very low costs. He does so by not spending much on marketing, using free technology wherever possible, and most importantly, by keeping his employee recruitment costs to a minimum. He was very clear that a software does not have to be expensive and one does not have to be an IIT or an MIT graduate to develop world class products. He decided to hire undergraduates

from local schools of his native town in Tamil Nadu. He looked beyond traditional methods of hiring and today, he does not have to waste time or money handling restless & overambitious engineers from top engineering colleges. Vembu founded the ‘Zoho University’. His students were fresh undergraduates from poor backgrounds who he handpicked after going from school to school.

Then he gave them a one year training , a laptop, free lunch and dinner, classes in English and Mathematics apart from software training, and even a stipend of Rs.6,000. He then absorbed them into Zoho and today gives them salaries comparable to the salaries of people who have joined him from IIT, et al. These brilliant students from poor backgrounds work in tandem with the IIT engineers at Zoho and create world class office and business applications; comparable to those offered by Google, Salesforce.com, Microsoft et al. He was cash strapped and that made him think differently and it is this that helped him find a way to create his own talent by starting Zoho University.

In today’s world, only those who think like these bootstrapped entrepreneurs have the highest chances of success. Think frugal, think innovative and continuously find new ways of doing business. A business based on this kind of thinking is generally a very stable business, for it can scale up or scale down whenever required. It has people at the top who know how to think differently, who know how to survive the tough times, and who never give up because they know that they can make it work, come what may. They have the ability to make the maximum use of the minimum that they have.

If you are planning to start a business, expand a business or even just planning to study business, train yourself to think the ‘bootstrap way’; for in the long run, the winners are those who have learnt to bootstrap their way to success.

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Introduction

Hello, this is a summary of IGCSE Business Studies, made by me, MrSpitfire to help you understand the concepts of Business Studies more easily. As a student, I would like to share with you my experience since I am studying this subject right now. I am not a professional so please feel free to add comments and suggestions on how I should improve.

This study guide is going to be about IGCSE Business Studies, Third Edition by Karen Borrington and Peter Stimpson. For more information, visit this page.

I hope you will enjoy this study guide and for me to be of help.

MrSpitfire

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CHAINED TO SUCCEED!

Michelangelo

She was a young girl when she first came to Mumbai from a small village. She was born into a dalit family and had faced discrimination all her life. After marriage at a tender age of 12, it got even worse as she was beaten up by her husband's family and tortured daily. She could not take it and ran away to her father's house. But the Indian society always looks down at a woman who leaves her husband. The pressure was too much for her to take and she tried to commit suicide at the age of 16. Her aunt saved her and inspired her to live her life on her own terms. That day, this 16 year old Kalpana made a promise to herself to live her way. She went back to Mumbai and started working at Rs.2 per day. She worked 16 hours a day. Soon, she started her own business. Subsequently, as luck would have it, she got a chance to run a metal engineering company - Kamani Tubes - which was in massive debt. She could understand the plight of the people best as she had already been in that situation once. She soon turned the company around and is today the CEO of this multi-million dollar company. Her commitment to herself, to never give up, finally paid off.

Rajita Chaudhuri

Success comes when you are ready to be bonded, when you are ready to be committed. With commitment, comes the ability to give your best without looking for returns. A mother's love is the best description of commitment. She loves her child without thinking or calculating what she will get in return. It's pure, it's unconditional, and it comes from a deep commitment towards her baby. All people who have achieved greatness have been able to do so because of their steely determination and their commitment to the cause. Michelangelo was one such person. He was a great artist, but his greatness lay in his ability to stick to his commitments. He sculpted his first masterpiece at the age of 21. He was so good that he was soon asked to paint the ceiling of a small chapel in the Vatican. He was initially asked to paint only 12 figures on the ceiling, a figure that over time increased to 400. Since he had committed to the task, he did not refuse to paint any of the 400 figures. The whole task took him four years, and that too while working mostly lying on his back, as he had to paint the ceiling. This caused permanent damage to his eyesight; and at the age of 37 itself, he started looking quite old. One day, while Michelangelo was immersed at work, someone saw him intently painting a figure that was quite concealed in a dark corner, a corner that most people would not notice. The person asked Michelangelo why he was working so hard on something that not many would see? His answer was, "God would see!" That is commitment. when you work with passion and give your best without calculating how much benefit you would get. As expected, the ceiling that Michelangelo painted set a new standard in art, which is being copied for generations now.

Mary Kay Ash

Great leaders are those who are committed to a cause. In fact, not just that, they are great leaders if they can make their employees as committed as they themselves are. As Thomas Watson Jr quoted in the book A Business and its Beliefs - The ideas that helped build IBM: "The basic philosophy, spirit, and drive of an organization have far more to do with its relative achievements than do technological or economic resources, organizational structure, innovation, and timing." If your people believe in you, then you can achieve anything. For them to believe in you, they need to see your commitment towards them. If you treat them well, challenge them well, and give a good, fair, honest feedback, they will remain committed to you come what may. Mary Kay Ash was not just a businesswoman committed to her business but she was also committed to the women who ran her business, who sold her products. After working for 25 years in a male-dominated industry, when Mary retired in 1963, she started writing a book on `direct-sales', something she had done all her life. The book soon turned into a business plan; and Mary and her 20-year-old son soon started a cosmetics company. She had spent her life in a male dominated world and knew how difficult it was for women and she was determined to change it. She created her company with a strong commitment towards women. A company where women had unlimited potential personally and financially. She once said, "My objective in life is to help women know how great they really are." The commitment showed and soon her company - Mary Kay Cosmetics - became one of the largest direct-sales cosmetics companies in the world. After all, a company is as great as its people.

Henry Luce

Henry Luce founded the Time magazine not only to make money from it, but he also thought that it was his responsibility to inform and educate his readers. He wanted them to think, debate and discuss various issues. He brought a sense of mission to journalism. By 1940, he was America's most powerful and innovative mass communicator. It was his commitment to a cause that made his magazines more gripping than others and provided readers a better view of the world than similar periodicals and newspapers. Soon, Time Inc. became a substantial concern. Most correspondents started reading Time and tried to copy its style of writing.

When you are committed, you set standards of excellence.

COMMITMENT GIVES YOU A REASON TO LIVE

AND A REASON TO DIE FOR

One man who gave up his life for a cause, a commitment, was Ernesto Che Guevara. He said, "We cannot be sure of having something to live for unless we are willing to die for it." In 1955, Che, who was just a troop doctor then, met Fidel Castro. Slowly, he developed close bonds with Fidel. Soon, Che understood the cause for which Fidel was fighting and started believing in it. He started fighting with Fidel - and from a doctor of the group, Che soon became its most courageous soldier. He was deeply committed to the cause of the oppressed and the exploited and was ready to fight for them, irrespective of which part of the world they lived in. He was from Argentina but he fought in Cuba; he even fought in Bolivia where he met his death. This is what has made him the most famous revolutionary of the world. He is a man whose life will continue to inspire many, even years after his death, for he lived his life for a cause and even died fighting for it.

Che Guevara

Commitment makes you go beyond your comfort zone. A lot of us start a lot of things because we are interested in them. We start learning a musical instrument, a new language, join the gym etcetera because, well, we're interested in the same. To be really successful in any field, one needs to go beyond merely being interested. One needs to be committed. When all that binds you with something is plain interest, you would undertake that only when it's convenient to you. But if you are committed, you'd do that even when it's not convenient.

Similarly, you find someone interesting and fall in love; but to make a marriage last, takes something more. A deep commitment to the relationship and a lot of hard work are required. Today, many are ready to fall in love but few are ready to commit to it; so the number of divorces are increasing because that commitment to love, no matter what obstacles or temptations come your way, is missing. Passion without commitment is of no use.

COMMITMENT IS FREEDOM

Commitment is a choice to give up choices. Once you have committed to a cause, it actually gives you a lot of freedom, for it removes all distractions; it removes the burden of finding other possibilities. You now become free to put all your energies into the one cause you believe in. When you commit to something - or someone - your life acquires a whole new meaning. Lack of commitment makes life unfulfilled and boring. Commitment makes you act, builds a sense of discipline, and gives you direction and satisfaction. Anita Roddick was one such leader. She was the founder of the company The Body Shop (which is now owned by L'Or‚al). She made cosmetics from plant extracts. She also made a commitment to herself that unlike other cosmetics companies, she would not test her products on animals. She operated a business of cosmetics but she was committed to the society. She once said, "I would rather promote human rights than a bubble bath." It was this commitment that helped her make all policies and make all the tough decisions. It is this commitment that made her company such a special company, for her customers too believed in her and in what she believed in - and loved her for it. She died in 2007 but her brand, her way of doing business, lives on. She showed the world that business could be done to help principles and ethics; and yet, one could make profits.

Ford Motor Company had been plagued with losses, yet the company stuck to its commitment towards the environment and did not succumb to pressure under hardships. Its focus and vision paid of and in 2011, it was voted as one of the world's most ethical companies. Its commitment to the environment was actually its key differentiator and helped it to beat its rivals. No wonder, it was the only auto company that made it to the list that had 110 companies in all. Ford made a comeback - but without compromising on the key issues it believed in.

All companies that have survived over generations, all relationships that have grown over decades, all leaders whom we talk about... all of them have chained themselves to certain ideas, certain philosophies. If you want to succeed, first find an idea that you want to commit your life to, that you want to be tied to and bonded to forever, for then you will find the freedom to really work and achieve what you want. It's a fact that with commitment comes true freedom, and being chained to a cause brings true success!

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IT’S COMMONSENSE SILLY!!!

The Olympics are over and forgotten and so is India’s performance. Yes, we did win a few medals, but we did not win a gold. If we had to look at the Olympics from a marketer’s point of view, then once again, there is this one company, which deserves to get the ‘Gold’ for its marketing strategy.

If you watched the Olympics, you would not have missed the neon green shoes on the feet of some 400 athletes. Well it’s not the first time that athletes have worn Nike shoes during the Olympics, but it is definitely the first time that they have worn this color. Earlier, Nike used to make shoes that matched the uniforms of the athletes. The shoes ‘matched’, which means that they blended with the uniforms. Nike did not like that for nobody really noticed them. Martin Lotti, the designer at Nike, was not happy just designing shoes; he wanted to be noticed. So he chose a color that was bound to stand out – be it the racing track, the boxing ring, or any other event. He colored his shoes neon green and made every athlete wear them. There was no chance that anyone could miss them. So while Adidas was the official sponsor of the game, it’s once again Nike’s shoes that got noticed.

Prof. Rajita Chaudhuri

If you stick by certain basic rules, chances of going wrong are reduced remarkably. Like in the above mentioned case, when people go to watch the Olympics, they go to watch the athletes. So if any brand wants to get noticed, the most logical thing would be to be as near to the athletes as possible. Nike did just that. It thought ‘athletes’ and all marketing and branding efforts were concentrated around the athlete. So while Coca Cola is rumored to have paid $100 million and Adidas has apparently shelled out around $63 million, it is Nike who did not spend any money on sponsorships that got the maximum attention. Branding is all about creating the right impact and Nike was bang on target this time. Branding is also about creating customer satisfaction, but surprisingly, many companies lose this focus and finally lose out in the race.

IT’S FOR THE CUSTOMER, SILLY

Peter Drucker quoted a long time back, “There is only one valid definition of a business purpose: to create a customer.” This simple fact is overlooked by many. First, you have customers, and the rest follows later. However logical and simple the concept, some companies just fail to implement it. For many, the focus is on ‘shareholders’. They rationalize that if shareholders are happy, the company is doing good.

Jack Welch is one of the best examples of a CEO who is known for his capacity to grow shareholder value. He moved GE from a market value of $14 billion to $484 billion; making it the most valuable and largest company in the world. It was the one company that met market expectations every quarter for almost 48 quarters, and it delighted shareholders for 12 years. So if shareholder expectations are the benchmark, then GE should have been the strongest company. But surprisingly, after Jack Welch retired, the company’s market capitalization started going down and today, GE has lost 60% of that value. How could this happen? The answer is simple; the earnings and the balance sheets were ‘managed’. There was no ‘real’ value creation happening in the company. This is one of the reasons why every day, a new accounting scandal emerges in the corporate world and companies that looked so strong and sturdy just disappear.

It’s customer delight and not shareholder delight that makes a company really outperform its competitors. Time and again, it has been proved that the company, which did not shift its focus from the customer, come what may, won in the long run .

The iPhone 5 was launched recently. It’s a phone the world had been waiting for with great anticipation. That’s because this is one company that never cared for Wall Street or the shareholders. It believed in only one rule – delighting the customer. In fact, Apple’s iconic founder Steve Jobs never left an opportunity to bring out the fact that he did not bother about shareholders, and what mattered was delighting the customer beyond expectations. His energy was focused on developing a new product and his consumers loved him for that. Apple fans world over adore the company, and do not care about the technology that it uses. So while the tech geeks might not rate the iPhone 4S very highly, the fact is that Apple sold four million iPhone 4 handsets in three days; the maxi mum a phone has ever sold in corporate history. The iPhone 5, which was launched a few days back, has been judged by many as lacking the ‘knockout gasping features’ that people have started to expect from Apple. But it will still sell 22 million units in the September quarter. In fact, after the launch, experts have revised their figures and are thinking that it will touch 27 million. According to some, the new device should sell as many as all the previous models combined. JP Morgan has even calculated that iPhone 5 could add half a percentage point to the country’s GDP growth!! Once again, you’ll see lines in front of Apple stores and share prices will start moving up.

Jack Welch

A company that specializes in delighting its customers looks different, feels different and behaves differently. As Roger Martin, in his book “Fixing the Game”, says “To delight customers, a radically different kind of management needs to be in place, with a different role for the managers, a different way of coordinating work, a different set of values and a different way of communicating. This is not rocket science.” These organizations are not dominated by the sales force or the accountants, who only talk numbers; but by people who know how to create value. After all, it is commonsense that delighting the customer is what gets a business profits.

Business is finally for the customers and shareholder satisfaction is the consequence of correct strategies and not the strategy, silly!!

IT’S ALL ABOUT PEOPLE ALWAYS, SILLY!

Steve Jobs

A few days back, Michelle Obama delivered a speech at a national political convention. It was one of the finest speeches ever made. In fact, it was so powerful that it’s being touted as the speech, which could change the way the nation looked at Obama. If Barack wins, he will owe more to his first lady than any other president ever has. The speech created such an impact because she spoke from her heart, because she spoke the truth, and because she did not talk negatively about her opponent. Instead, she talked about herself, her family and her husband, and how they came from modest backgrounds and hence they understand best what the millions of voters are going through. She told them how she and Barack were still the same people and hence their policies would be the ones that they would have wanted when they were just simple working class people. She talked of love; she talked of how hard Barack had worked and how he was still that same man she had married years ago, for “being President doesn’t change who you are… it reveals who you are”. And for the first time, she had driven an entire nation to tears and most probably driven Barack Obama back into the hearts of many Americans.

Michelle Obama

Even when it comes to winning the Presidential elections, remember, it’s finally all about people and making people like you. Michelle Obama knew that people would appreciate honesty. Also, pointing fingers at your opponent will not put you in a better light; rather, being honest will. It’s commonsense.

Finally be it running a business, or running an ad campaign or even running for President; the rule remains the same. If you want to succeed, no fancy gimmicks may work. But simple commonsense will work always.

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JUST DO IT!

The way to your dreams, your goals lies not just in charting a good action-plan, but also equally in decluttering your life, the way all great men have done

DON’T COMPLICATE IT

“Purity and simplicity are the two wings with which man soars above the earth and all temporary nature...” – Thomas Kempis

In today’s world, where we live in an environment of clutter, chaos and confusion, the person who is able to de-clutter and simplify his life is the one who can achieve the maximum. Most of us are doing too much – speaking too much, connecting too much (thanks to Facebook and other networking sites), multitasking too much, aiming for too many goals, filling our workday with too many commitments, and the list goes on. It’s time to hold back, think, and simplify things. It’s time to focus on the essential and de-clutter, and de-stress our life. All successful people have done it.

However, simplicity is the most difficult thing to achieve. The ones who can achieve it have been the most successful. Charlie Chaplin was one such legend. He simplified films. All his films were immaculately constructed. He understood human psychology perfectly and depicted it in the simplest manner in his films, which is why even today, they are as enjoyable to watch. Come to think of it, simplicity can be pretty complex. Only if you have a deep understanding of the problem can you think of a simple explanation or a simple solution. As Lao Tzu once said “I have just three things to teach: simplicity, patience, compassion. These three are your greatest treasures.” The one who can master these three virtues is sure to succeed.

Look at the world of advertising; even here, simplicity works the best. The commercials we remember the longest are the ones that tell a simple story. Remember the Zoozoos of Vodafone, or the little pug of the Hutch advertisements? Almost all of us remember them even though the ads have stopped being aired on TV. A great advertising guru is one who has the knack to understand the pulse of the consumer. Ask any advertising man and he will tell you that the toughest challenge is getting ‘customer insight’, i.e. trying to figure out what will motivate the consumer to buy. Most of the times, the answers are the simplest. When Rasna was launched (sometime around 1983), the ad agency Mudra used one simple headline, ‘Home Magic’, and below it put a photograph of 32 glasses filled with Rasna with a straw in each glass. A simple idea, but the housewives loved it for the visual embodied the value-for-money proposition. One pack could make 32 glasses. So successful was this simple depiction that the visual remained the brand’s identity for 23 years. A great advertisement is one, which very simply articulates what the consumer wants. This requires great skill but once you have found your message, you do not require expensive locations, celebrities or expensive sets to make your ad stand out and get noticed. The right message is remembered and people never get tired of watching the ad. Amul’s advertisements are another example of the power of simplicity. They pick up a topic that is in the news and build an ad around it. In 1967, the first hoarding of Amul went up in Mumbai and till today, people wait for Amul’s next ad. Look what a simple idea can do!

Rajita Chaudhuri

It’s said that the greatest truths are the simplest. The same can be said of the greatest men. William Wordsworth was a great poet who wrote about the simple joys of nature; and even today, his poems remain as popular. He said, “How many undervalue the power of simplicity! But it is the real key to the heart.” Mahatma Gandhi, one of the greatest men India has seen, believed deeply in the virtues of simplicity. He said, “Live simply, so that others may simply live.” The moment we ‘clutter’ our life with too many unnecessary wants and needs, we forget to enjoy its true beauty; and it’s this greed, this insatiable hunger that leads to more problems for not just us but those around us also.

In a nutshell, great things start with simple ideas; and truly great people have achieved their greatness by believing in simplicity. They lived simple lives and found simple solutions to every complicated problem. Very simply put, if you want to lose weight, the simple solution is to eat less. If you want to do well in studies, study daily. If you want to become a good musician or sportsman, get up every morning and practise. If you want India to really change, go ahead and vote for the most deserving candidate. If you want to achieve something, just do it!

DON’T GIVE IN

The temptations of time wasters are everywhere and are the causes of a lot of procrastination. The television and YouTube are two mediums causing the biggest wastage of time. Hours evaporate into a mist of undone tasks before we know it. These temptations are the greatest when we have the most to do. The less time we have, the more the temptation to waste it doing things, which could easily have been avoided.

In his book Eat the Frog, author Brian Tracy gives one simple advice. He says that according to an old saying, if you eat a live frog in the morning, nothing bad will happen to you for the whole day. However, the ‘frog’ that he speaks about is actually the one thing that you find the most difficult to do in your ‘to-do’ list. It means the task, which is the most important; and it is generally the most demanding task that we try to procrastinate the most. It is this ‘frog’ that should be attacked first and finished the moment we start our day. This will ensure that the job is done when you have the maximum energy and time in hand, leaving you feeling happy and satisfied for the rest of the day; and perhaps, because of this, one is encouraged to do even more things in lesser time. As Abraham Lincoln once said, “The best thing about the future is it comes one day at a time.” What he meant was that we write our future ‘one day at a time’; so if each day is planned well and if each day is made productive, the future is bound to be good. Live each day to its fullest, by planning it well and starting the day by doing the most important things first.

GIVE UP, BUT DON’T GIVE IN

Give up something. Abstain from certain things. Have the courage to say ‘No’, for it gives you strength and prevents you from giving in... from succumbing to pressure. Great people managed to achieve the impossible by making a promise to themselves of abstaining from certain things till they accomplished what they wanted. Chanakya refused to tie his hair till he had avenged his father’s death. Draupadi refused to tie her hair till she had taken her revenge. Gandhi refused to eat (and undertook indefinite fasts) till the British agreed to his demands. Giving up something to attain a greater goal has been the foundation of Indian culture. It gives one immense power. Fasting makes us stronger. Giving up non-vegetarian food makes us increase our self-control. You could start by giving up one activity that wastes time and use that time to do something productive.

One of the greatest qualities of a leader is his ability to overcome temptations. It’s his ability and courage to say a ‘no’ which gives him greater control over his life and his thoughts, for every time he says a ‘no’ to the temptation, he keeps the focus on his goals and that increases his determination and willpower. You say a ‘no’ for you refuse to take ‘not possible’ for an answer; because when you are obsessed with an idea and think only about it and nothing else, all your energy and life starts revolving around it. Once that happens, you are bound to succeed.

A person who can control his thoughts, a person who has a strong mind is the one who achieves the most. As someone said, “As you think, so shall you become.” Think about what you are planning to do today, for your thoughts become your actions. If your thoughts match your plans, only then will you succeed. The book Think and Grow Rich by Napoleon Hill says that if you have a burning desire to achieve something, you will get it, for that [burning desire] will help you overcome all obstacles and opposition. Thoughts become things, and as Hill puts it, “All achievements, all earned riches have their beginning in an idea!” So find that idea which will engulf you and make you work towards it like a man possessed, and you will never look back.

Both your thoughts and actions finally decide your future. So think right – this will help you to plan right. Before that, de-stress and declutter your life; simplify it so that you can focus on the really important stuff. Finally, once you have decided on something, don’t let anybody in the world change it... Just do it!

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Chapter 1: The purpose of Business Activity

The economics problem: needs and wants.

Basically, all humans have needs and wants. Needs are things we can't live without, while wants are simply our desires that we can live without. We all have unlimited wants, which is true, since all of us want a new PC, a car, new graphics card, etc. that we actually do not need to live. Businesses produce goods and services to satisfy needs and wants.

Although we have unlimited wants, there are not enough resources for everyone. Resources can be split into 4 factors of production, which are:

- Land: All natural resources used to make a product or service.

- Labour: The effort of workers required to make a product or service.

- Capital: Finance, machinery and equipment required to make a product or service.

- Enterprise: Skill and risk-taking ability of the entrepreneur.

Entrepreneurs are people who combine these factors of production to make a product.

With these discussed, lets move on to the economic problem. The economic problem results from limited resources and unlimited wants. This situation causes scarcity, when there are not enough goods to satisfy the wants for everybody. Because of this, we will have to choose which wants we will satisfy (that will be of more benefit to us) and which we will not when buying things. For any choice, you will have to would have obtained if you didn't spend that money. For example, you would have got a book if you didn't buy the pen, or you would have a burger if you didn't buy the chips. Basically, item that you didn't buy is the opportunity cost. Make sure that the opportunity cost isn't higher than what you bought!

"Opportunity cost: the next best alternative given up by choosing another item."

Here is a diagram showing the whole economic problem:

Division of labour/Specialisation

Because there are limited resources, we need to use them the most efficient way possible. Therefore, we now use production methods that are as fast as possible and as efficient (costs less, earns more) as possible. The main production method that we are using nowadays is known as specialization, or division of labour.

"Division of Labour/Specialisation is when the production process is split up into different tasks and each specialized worker/ machine performs one of these tasks."

Pros:

• Specialized workers are good at one task and increases efficiency and output.
• Less time is wasted switching jobs by the individual.
• Machinery also helps all jobs and can be operated 24/7.

Cons

• Boredom from doing the same job lowers efficiency.
• No flexibility because workers can only do one job and cannot do others well if needed.
• If one worker is absent and no-one can replace him, the production process stops.

Why is business activity needed? (summary)

- Provides goods and services from limited resources to satisfy unlimited wants.

- Scarcity results from limited resources and unlimited wants.

- Choice is necessary for scarce resources. This leads to opportunity costs.

- Specialisation is required to make the most out of resources.

Business activity:

1. Combine factors of production to create goods and services.
2. Goods and services satisfy peoples wants.
3. Employs people and pays them wages so they can consume other products.

Business Objectives:

All businesses have aims or objectives to achieve. Their aims can vary depending on their type of business or these can change depending on situations. The most common objectives are:

1. Profit: Profit is what keeps a company going and is the main aim of most businesses. Normally a business will try to obtain a satisfactory level of profits so they do not have to work long hours or pay too much tax.
2. Increase added value: Value added is the difference between the price and material costs of a product. E.g. If the price when selling a pen is $3 and it costs $1 in material, the value added would be $2. However, this does not take into account overheads and taxes. Added value could be increased by working on products so that they become more expensive finished products. One easy example of this is a mobile phone with a camera would sell for much more than one without it. Of course, you will need to pay for the extra camera but as long as prices rise more than costs, you get more profit.
3. Growth: Growth can only be achieved when customers are satisfied with a business. When businesses grow they create more jobs and make them more secure when a business is larger. The status and salary of managers are increased. Growth also means that a business is able to spread risks by moving to other markets, or it is gaining a larger market share. Bigger businesses also gain cost advantages, called economies of scale.
4. Survival: If a business do not survive, its owners lose everything. Therefore, businesses need to focus on this objective the most when they are: starting up, competing with other businesses, or in an economic recession.
5. Service to the community: This is the primary goal for most government owned businesses. They plan to produce essential products to everybody who need them.

These business objectives can conflict because different people in a business want different things at different times.

Stakeholders:

Stakeholders are a person or a group which has interest in a business for various reasons and will be directly affected by its decisions. Stakeholders also have different objectives and these also conflict over time.

There are two 6 types of stakeholders, and these types can be classified into two groups with similar interests.

Group 1: Profit/Money

• Owners:

1. Profit, return on capital.
2. Growth, increase in value of business.

• Workers

1. High salaries.
2. Job security.
3. Job satisfaction.

• Managers

1. High salaries.
2. Job security.
3. Growth of business so they get more power, status, and salary.

Group 2: Value

• Customers

1. Safe products.
2. High quality.
3. Value for money.
4. Reliability of service and maintenance.

• Government

1. Employment.
2. Taxes.
3. National output/GDP increase.

• Community

1. Employment.
2. Security.
3. Business does not pollute the environment.
4. Safe products that are socially responsible.

So... That's the first chapter guys. I realised that doing summaries in this format takes so much time, so the next chapter I will do it more in note form, making this less of a study guide but a revision guide or summary. Chapter two coming out soon!

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Chapter 2: Types of business activity

Levels of economic activity

In order for products to be made and sold to the people, it must undergo 3 different production processes. Each process is done by a different business sector and they are:

• Primary sector: The natural resources extraction sector. E.g. farming, forestry, mining... (earns the least money)
• Secondary sector: The manufacturing sector. E.g. construction, car manufacturing, baking... (earns a medium amount of money)
• Tertiary sector: The service sector. E.g banks, transport, insurance... (earns the most money)

Importance of a sector in a country:

• no. of workers employed.
• value of output and sales.

Industrialisation: a country is moving from the primary sector to the secondary sector.

De-industrialisation: a country is moving from the secondary sector to the tertiary sector.

In both cases, these processes both earn the country more revenue.

Types of economiess

Free market economy:

All businesses are owned by the private sector. No government intervention.

Pros:

• Consumers have a lot of choice
• High motivation for workers
• Competition keeps prices low
• Incentive for other businesses to set up and make profits

Cons:

• Not all products will be available for everybody, especially the poor
• No government intervention means uncontrollable economic booms or recessions
• Monopolies could be set up limiting consumer choice and exploiting them

Command/Planned economy:

All businesses are owned by the public sector. Total government intervention. Fixed wages for everyone. Private property is not allowed.

Pros:

• Eliminates any waste from competition between businesses (e.g. advertising the same product)
• Employment for everybody
• All needs are met (although no luxury goods)

Cons:

• Little motivation for workers
• The government might produce things people don't want to buy
• Low incentive for firms (no profit) leads to low efficiency

Mixed economy:

Businesses belong to both the private and public sector. Government controls part of the economy.

Industries under government ownership:

• health
• education
• defence
• public transport
• water & electricity

Privatisation

Privatisation involves the government selling national businesses to the private sector to increase output and efficiency.

Pros:

• New incentive (profit) encourages the business to be more efficient
• Competition lowers prices
• Individuals have more capital than the government
• Business decisions are for efficiency, not government popularity
• Privatisation raises money for the government

Cons:

• Essential businesses making losses will be closed
• Workers could be made redundant for the sake of profit
• Businesses could become monopolies, leading to higher price

Comparing the size of businesses

Businesses vary in size, and there are some ways to measure them. For some people, this information could be very useful:

• Investors - how safe it is to invest in businesses
• Government - tax
• Competitors - compare their firm with other firms
• Workers - job security, how many people they will be working with
• Banks - can they get a loan back from a business.

Ways of measuring the size of a business:

• Number of employees. Does not work on capital intensive firms that use machinery.
• Value of output. Does not take into account people employed. Does not take into account sales revenue.
• Value of sales. Does not take into account people employed.
• Capital employed. Does not work on labour intensive firms. High capital but low output means low effiency.

You cannot measure a businesses size by its profit, because profit depends on too many factors not just the size of the firm.

Business Growth

All owners want their businesses to expand. They reap these benefits:

• Higher profits
• More status, power and salary for managers
• Low average costs (economies of scale)
• Higher market share

Types of expansion:

• Internal Growth: Organic growth. Growth paid for by owners capital or retained profits.
• External Growth: Growth by taking over or merging with another business.

Types of Mergers (and main benefits):

- Horizontal Merger: merging with a business in the same business sector.

• Reduces no. of competitors in industry
• Economies of scale
• Increase market share

- Vertical merger:

Forward vertical merger:

• Assured outlet for products
• Profit made by retailer is absorbed by manufacturer
• Prevent retailer from selling products of other businesses
• Market research on customers transfered directly to the manufacturer

Backward vertical merger:

• Constant supply of raw materials
• Profit from primary sector business is absorbed by manufacturer
• Prevent supplier from supplying other businesses
• Controlled cost of raw materials

Conglomerate merger:

• Spreads risks
• Transfer of new ideas from one section of the business to another

Why some businesses stay small:

There are some reasons why some businesses stay small. They are:

• Type of industry the business is in: Industries offering personal service or specialized products. They cannot grow bigger because they will lose the personal service demanded by customers. E.g. hairdressers, cleaning, convenience store, etc.
• Market size: If the size of the market a business is selling to is too small, the business cannot expand. E.g. luxury cars (Lamborghini), expensive fashion clothing, etc.
• Owners objectives: Owners might want to keep a personal touch with staff and customers. They do not want the increased stress and worry of running a bigger business.

Thats the end of chapter two! Chapter 3 coming soon!

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Chapter 3: Forms of business organisation

Almost every country consists of two business sectors, the private sector and the public sector. Private sector businesses are operated and run by individuals, while public sector businesses are operated by the government. The types of businesses present in a sector can vary, so lets take a look at them.

Private Sector

Sole Traders

Sole traders are the most common form of business in the world, and take up as much as 90% of all businesses in a country. The business is owned and run by one person only. Even though he can employ people, he is still the sole proprietor of the business. These businesses are so common since there are so little legal requirements to set up:

• The owner must register with and send annual accounts to the government Tax Office.
• They must register their business names with the Registrar of Business Names.
• They must obey all basic laws for trading and commerce.

There are advantages and disadvantages to everything, and here are ones for sold traders:

Pros:

• There are so few legal formalities are required to operate the business.
• The owner is his own boss, and has total control over the business.
• The owner gets 100% of profits.
• Motivation because he gets all the profits.
• The owner has freedom to change working hours or whom to employ, etc.
• He has personal contact with customers.
• He does not have to share information with anyone but the tax office, thus he enjoys complete secrecy.

Cons:

• Nobody to discuss problems with.
• Unlimited liability.
• Limited finance/capital, business will remain small.
• The owner normally spends long hours working.
• Some parts of the business can be inefficient because of lack of specialists.
• Does not benefit from economies of scale.
• No continuity, no legal identity.

Sole traders are recommended for people who:

• Are setting up a new business.
• Do not require a lot of capital for their business.
• Require direct contact for customer service.

Partnership

A partnership is a group consisting of 2 to 20 people who run and own a business together. They require a Deed of Partnership or Partnership Agreement, which is a document that states that all partners agree to work with each other, and issues such as who put the most capital into the business or who is entitled to the most profit. Other legal regulations are similar to that of a sole trader.

Pros:

• More capital than a sole trader.
• Responsibilities are split.
• Any losses are shared between partners.

Cons:

• Unlimited liability.
• No continuity, no legal identity.
• Partners can disagree on decisions, slowing down decision making.
• If one partner is inefficient or dishonest, everybody loses.
• Limited capital, there is a limit of 20 people for any partnership.

Recommended to people who:

• Want to make a bigger business but does not want legal complications.
• Professionals, such as doctors or lawyers, cannot form a company, and can only form a partnership.
• Family, when they want a simple means of getting everybody into a business (Warning: Nepotism is usually not recommended).

Note: In some countries including the UK there can be Limited Partnerships. This business has limited liability but shares cannot be bought or sold. It is abbreviated as LLP.

Private Limited Companies

Private Limited Companies have separate legal identities to their owners, and thus their owners have limited liability. The company has continuity, and can sell shares to friends or family, although with the consent of all shareholders. This business can now make legal contracts. Abbreviated as Ltd (UK), or Proprietary Limited, (Pty) Ltd.

Pros:

• The sale of shares make raising finance a lot easier.
• Shareholders have limited liability, therefore it is safer for people to invest but creditors must be cautious because if the business fails they will not get their money back.
• Original owners are still able to keep control of the business by restricting share distribution.

Cons:

• Owners need to deal with many legal formalities before forming a private limited company:

o The Articles of Association: This contains the rules on how the company will be managed. It states the rights and duties of directors, the rules on the election of directors and holding an official meeting, as well as the issuing of shares.

o The Memorandum of Association: This contains very important information about the company and directors. The official name and addresses of the registered offices of the company must be stated. The objectives of the company must be given and also the amount of share capital the owners intend to raise. The number of shares to be bought b each of the directors must also be made clear.

o Certificate of Incorporation: the document issued by the Registrar of Companies that will allow the Company to start trading.

• Shares cannot be freely sold without the consent of all shareholders.
• The accounts of the company are less secret than that of sole traders and partnerships. Public information must be provided to the Registrar of Companies.
• Capital is still limited as the company cannot sell shares to the public.

Public Limited Companies

Public limited companies are similar to private limited companies, but they are able to sell shares to the public. A private limited company can be converted into a public limited company by:

1. A statement in the Memorandum of Association must be made so that it says this company is a public limited company.
2. All accounts must be made public.
3. The company has to apply for a listing in the Stock Exchange.

A prospectus must be issued to advertise to customers to buy shares, and it has to state how the capital raised from shares will be spent.

Pros:

• Limited liability.
• Continuity.
• Potential to raise limitless capital.
• No restrictions on transfer of shares.
• High status will attract investors and customers.

Cons:

• Many legal formalities required to form the business.
• Many rules and regulations to protect shareholders, including the publishing of annual accounts.
• Selling shares is expensive, because of the commission paid to banks to aid in selling shares and costs of printing the prospectus.
• Difficult to control since it is so large.
• Owners lose control, when the original owners hold less than 51% of shares.

Control and ownership in a public limited company:

The Annual General Meeting (AGM) is held every year and all shareholders are invited to attend so that they can elect their Board of Directors. Normally, Director are majority shareholders who has the power to do whatever they want. However, this is not the case for public limited companies since there can be millions of shareholders. Anyway, when directors are elected, they have to power to make important decisions. However, they must hire managers to attend to day to day decisions. Therefore:

• Shareholders own the company
• Directors and managers control the company

This is called the divorce between ownership and control.

Because shareholders invested in the company, they expect dividends. The directors could do things other than give shareholders dividends, such as trying to expand the company. However, they might loose their status in the next AGM if shareholders are not happy with what they are doing. All in all, both directors and shareholders have their own objectives.

Co-operatives

Cooperatives are a group of people who agree to work together and pool their money together to buy "bulk". Their features are:

• All members have equal rights, no matter how much capital they invested.
• All workload and decision making is equally shared, a manager maybe appointed for bigger cooperatives
• Profits are shared equally.

The most common cooperatives are:

• producer co-operatives: just like any other business, but run by workers.
• retail co-operatives: provides members with high quality goods or services for a reasonable price.

Other notable business organizations:

Close Corporations:

This type of business is present in countries such as South Africa. It is like a private limited company but it is much quicker to set up:

• Maximum limit of 10 people.
• You only need a simple founding statement which is sent to the Registrar of Companies to start the business.
• All members are managers (no divorce of ownership and control).
• A separate legal unit, has both limited liability and continuity.

Cons:

• The size limit is not suitable for a large business.
• Members may disagree just like in a partnership.

Joint ventures

Two businesses agree to start a new project together, sharing capital, risks and profits.

Pros:

• Shared costs are good for tackling expensive projects. (e.g aircraft)
• Pooled knowledge. (e.g foreign and local business)
• Risks are shared.

Cons:

• Profits have to be shared.
• Disagreements might occur.
• The two partners might run the joint venture differently.

Franchising

The franchisor is a business with a successful brand name that recruits franchisees (individual businesses) to sell for them. (e.g. McDonald, Burger King)

Pros for the franchisor:

• The franchisee has to pay to use the brand name.
• Expansion is much faster because the franchisor does not have to finance all new outlets.
• The franchisee manages outlets
• All products sold must be bought from the franchisor.

Cons for the franchisor:

• The failure of one franchise could lead to a bad reputation of the whole business.
• The franchisee keeps the profits.

Pros for the franchisee:

• The chance of failure is much reduced due to the well know brand image.
• The franchisor pays for advertising.
• All supplies can be obtained from the franchisor.
• Many business decisions will be made by the franchisor (prices, store layout, products).
• Training for staff and management is provide by the franchisor.
• Banks are more willing to lend to franchisees because of lower risks.

Cons for the franchisee:

• Less independence
• May be unable to make decisions that would suit the local area.
• Licence fee must be paid annually and a percentage of the turnover must be paid.

Public Sector

Public corporations:

A business owned by the government and run by Directors appointed by the government. These businesses usually include the water supply, electricity supply, etc. The government give the directors a set of objectives that they will have to follow:

• to keep prices low so everybody can afford the service.
• to keep people employed.
• to offer a service to the public everywhere.

These objectives are expensive to follow, and are paid for by government subsidies. However, at one point the government would realise they cannot keep doing this, so they will set different objectives:

• to reduce costs, even if it means making a few people redundant.
• to increase efficiency like a private company.
• to close loss-making services, even if this mean some consumers are no longer provided with the service.

Pros:

• Some businesses are considered too important to be owned by an individual. (electricity, water, airline)
• Other businesses, considered natural monopolies, are controlled by the government. (electricity, water)
• Reduces waste in an industry. (e.g. two railway lines in one city)
• Rescue important businesses when they are failing.
• Provide essential services to the people (e.g. the BBC)

Cons:

• Motivation might not be as high because profit is not an objective.
• Subsidies lead to inefficiency. It is also considered unfair for private businesses.
• There is normally no competition to public corporations, so there is no incentive to improve.
• Businesses could be run for government popularity.

Municipal enterprises

These businesses are run by local government authorities which might be free to the user and financed by local taxes. (e.g, street lighting, schools, local library, rubbish collection). If these businesses make a loss, usually a government subsidy is provided. However, to reduce the burden on taxpayers, many municipal enterprises are being privatised.

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