Ch.3 What Is Business?
The Big Picture
• An efficient and effective operating platform can be assessed against
three fundamental characteristics: its commercial endeavours, its
emoloyee interaction model, and its organizational efficiency and
• Commercial endeavors refers to the markets the organization serves,
the products and services it offers, and the needs it professes to meet in
the marketplace. It reflects the results of understanding the
demand/supply relationships that exist in the marketplace and the
capacity and capability of each competitor within such a market to deliver
products/services to its buyers
• Employee Interaction refers to the value-creating skills an
organization’s employees bring to the marketplace. The success of many
businesses lies with the specialized skills that exist within its labor force.
• Organizational efficiency and structure –is a reflection of the
complexities of the business activities that circulate within an
organization. –it is reflective of the development of the infrastructure and
its related culture, which an organization creates, and the transaction
processes that it develops to service the marketplace it targets.
What is Business?
• Business refers to the mission focused activities aimed at identifying
the needs of a particular market or markets, and the development of a
solution to such needs through the acquisition and transformation of
resources into goods and services that can be delivered to the
marketplace at a profit.
• In order to have results in the most efficient and effective way to the
marketplace, an organization will build its business model or system
around four core fundamental resources areas –assets labor, capital
and managerial acumen
• Assets: Refers to the infrastructure and resources base of the
organization. –Includes, an organization’s land buildings, process and
infrastructure base (bricks and morater, e-commerce etc.)
• Labour: Refers to the human resource requirements of the business, while capital: refers to the money needed by an organization to
support assert-based expenditures, meet operating cash requirements,
and invest in the development of new products to and/or services
which the organization desires to introduce into the marketplace.
• Managerial Acumen: Refers to the foresight, drive, knowledability,
decision-making competency, and ingenuity of the organization’s key
individuals –its owners or top-level managers.
• Visionary leadership refers to the ability of managers to establish a
direction for the organization based on the needs identified in the
marketplace and the mission (reason for being) of the organization
• Business Model System: Is the operational platform or structure that
a business uses to generate revenue and profit
• The role of the business owner or management team is to anticipate,
recognize, or sense an opportunity to create a product, and to deliver a
service that is felt to be unique, important, and of value (meaningful)
to a targeted customer or customers.
• By strategy we are referring to the specific objectives an organization
hopes to achieve during the planning cycle
• A 3C assessment means analyzing the resources available to the
organization and the capabilities and competencies it possesses. –this
defines what organizations can and cannot do which then enables the
management team to define how and to what extent it can capitalize
on its identified strategic oportunities in a manner that is superior to
the competition it competes against
• Understanding its strategic opportunities and its capabilities,
competencies, and overall capacity, the business management team
develops a business plan via a process called the business planning
cycle, which outlines its focus on methodology for using its resources
to create valuable products and services that will create a unique
position in the marketplace
• A company has a competitive advantage when it can offer
customers a product or servce that has more value to them than
similar products offered by other companies.
• Competitive Advantage: is an advantage an organization has over
its competitors that enables it to generate more sales, achieve greater
margins, achieve a lower cost base, or attract and retain more
customers. • Businesses need to identify and set objectives that will enable them to
achieve a defined position in the marketplace, and detail an
implementation strategy that wil enable them to achieve this desired
• For-profit companies need competitive business models, so do not-
for-profit organizations, such as hospitals, school boards, YMCA’s,
social service agencies, educational institutions and registered
• For-profit companies are organizations whose overarching objective
is profitability and wealth creation on behalf of their shareholders and
• Not-for-profit organizations: are those that are not in business to
make a profit, but rather seek to deliver services to the people, groups
and communities they serve.
• Not for profit still need a business plan, operating model, and business
system that will enable them to cover their operating costs and to
employ strategies to fund the ongoing delivery of meaningful services
The Fundamental Objectives of Business
• Profit is necessary in the immediate term for the business to pay its bills
and reinvest in the future
• Set in motion the ability of the organization to achieve long-term grown
• Business recognize the demand for the products and services they
currently offer will change, and could, in fact, disappear over time.
• Decision making process is really important because the social and
• On a global basis –consumers are encouraging –and, in some industries,
demanding –that businesses operate and act in a manner that
demonstrates social responsibility with respect to product development,
resource consumption and operating processes.
• Managers are expected to place society the organization and the
organization’s stakeholders ahead of personal gain when making
decisions and when interacting with the marketplace. • Stakeholders: refers to individuals, groups or organizations that have a
direct or indirect relationship with an organization and that can be
impacted by its policies, actions, and decision. Stakeholders could include
customers, suppliers, government, employees and so on.
• Fundamental Objectives of Business Managers
o Short Term Profit
o Long Term Growth and Profitability
o Social and Environmental Responsibility
The Business Model and Profitability
• A successful business model (system) is one that enables a company to
meet the needs of the marketplace in a manner which is superior to that
of its competitors
• Model could bebuilt around cost advantages, service advantages, sales
and marketing advantages, technological advantages or human resource
The Difference between Profit and Profitability
• Profit: is the “bottom line” result an organization has realized for an
identified immediate period of time. In simple terms, Total Revenue –
Total Expenses = Profit
• Profitability: measures how well a company is using its resources over a
specific period fo time to generate earnings relative to tis competitors.
• Profitability analysis takes into consideration such factors as return on the
capital invested, return on equity, the financial leverage the organization
undertook to finance its assets and operations, the level of pre-tax income
it earned, and so on.
• Stockholders refers to any person, company, or organization that owns
at least one share of stock in a specific company.
Creating a Value Proposition
• Business organizations need to design, produce, distribute, and
communicate to the marketplace to products and services they offer.
• The management team accomplishes this through the development of a
value proposition • Value Proposition: is a statement that summarizes whom a product or
service is geared toward and the benefits the purchaser will realize as a
result of using the product or service.
• It also communicates to the purchaser how the product or service differs
from competing products or services offered in the marketplace.
• Companies develop value propositions for the purpose of communicating
to customers how their products/services are different and the important
benefits which they offer
• Value Proposition = service benefits+product benefits+brand benefits+
cost benefits+emotional benefits
• In general the more unique, important, and value-driven your product is,
the greater the opportunity to communicate to the potential purchase: a
value proposition which has a positive price/quality relationship, and
which can be considered to be superior to those of your competitors
• Value proposition is important because it’s not always about the lowest
price, but about understanding the needs and desires of the marketplace
and offering a product/service that responds to those needs.
• In developing your value proposition, 5 fundamental questions need to be
assessed and will ultimately assist the management team of a business in
determining how and where to compete in the marketplace. These
questions are as follows:
o What is my cost base for producing and/or delivering this
product/service to the marketplace, and how does this compare to
that of my main competitors
o Do I have a strong brand profile in the marketplace that I can
leverage as part of the benefit to the customer when purchasing
o Are there emotional benefits that the customer will attach to this
product/service offering? If so, how can I use this to assist me in
strengthening my value proposition?
o Are there unique service benefits I can incorporate into this value
proposition that will assist me in supporting potential and existing
• Market Segment: is a portion of the market that is deemed to possess
unique characteristics businesses can target in order to generate a preference for their products and/or services
Understanding Your Cost Base
• Expenses can take the form of either asset-based expenditures (capital
asset expenditures) or operating expenses
• Asset-based expenditures are those expenditures incurred in
commencing a business operation or expanding its capacity.
• Operating expenditures are expenses incurred as a result of the
normal business operations.
• Managers and business owners need to understand the costs they will
incur in setting up, expanding and operating their businesses. These costs
must be recognized within their business plans and pricing strategies to
ensure the costs of the operation and other related financial obligations
are fully offset by the revenue generated by the business and that
acceptable levels of profit are realized.
• A key component of managing any business is in understanding the
expenses that must be considered when setting the price of a
The Business Decision Making Landscape
• Being in business is about being able to understand the macro
environment around you; the resources, capability and capacity that you
possess; and the ability to communicate to the marketplace the
uniqueness and importance of the products/services you offer.
• Developing and managing business requires its owners/managers to:
o Create a vision of the opportunity in the marketplace
o Confirm that the market size of customers is large enough that,
once commercialized, the opportunity can enable the organization
to make a profit and sustain this profitability for the anticipated
planning cycle and beyond
o Confirm that a position within the market is feasible, which will
enable the company to compete in a manner that is superior to its
o Confirm that the market situation will stay constant long enough for
the business plan to be developed and executed o Confirm that the business has the resource base and the capability
to execute the strategy
o Execute the strategy in an efficient and effective manner, achieving
the objectives set forth within the business plan created.
• Strategy: refers to the development of plans and decisions that will
guide the direction of the firm and determine its long term performance
• Strategy focuses on the vision of the firm and the opportunity it believes
exists in the marketplace, it also checks that the life expectancy of the
product or service is long enough to ensure that the initial investment can
be recovered and that the firm can make a profit
• Strategy development assesses whether the firm has the competencies
and resources to compete in this targeted market.
• Tactics: refers to the immediate term actions which a firm executes in
order to meet the short term objectives set forth in the current planning
• Tactics can be thought of as the actions items a firm undertakes to ensure