UNIT-1 Entrepreneurial Opportunity | Class 12
IMPORTANT NOTE: Wherever there is a diagram and flow chart in the CBSE Book, consider it as part of the answer, and it is compulsory to draw that diagram and flow chart along with answers; otherwise, marks will be deducted.
Meaning of Entrepreneurship, Entrepreneur, Enterprise
Entrepreneurship (PROCESS): Entrepreneurship is the process of identifying opportunities in the marketplace and arranging for resources to pursue the identified opportunity in order to harness long-term gains.
Entrepreneur (PERSON): An entrepreneur is a person who is a catalytic agent in converting a situation into an opportunity and sets up a business in the process.
In the words of Peter F Drucker Entrepreneur as one who always searches for an opportunity.
Enterprise (OUTCOME): The outcome of the Entrepreneurship process is called Enterprise. It provides goods and services, creates jobs, contributes to national income, exports, and also contributes to the overall economic development.
Business Opportunity:
Meaning: It is an attractive economic idea which could be implemented to create a business, earn profits and ensure further growth.
Pre-requisites of a Business Opportunity\ Two things to be kept in mind while selecting an opportunity:
There is a good market for the product he is going to produce
The rate of return on the investment is attractive to be accepted by him
Can all ideas be converted into a business opportunity?
Elements of Business Opportunity: (MAPCG)
Assured Market scope
An Attractive and acceptable rate of return on investment
Practicability of the idea
Competency of the entrepreneur to encash it
Potential of Future Growth
Enterprise building process / Steps in the process of Enterprise building: (OCIP)(follow flow chart from book)
1. Opportunity spotting: It is done by analysing the needs and wants of the society
2. Creativity and Ideas: Then, various ideas received from various sources are identified and evaluated to find a creative solution of the above needs and wants.
3. Innovation and product: Then on the basis of the above creative solution a product is created.
4. Project Business: Then there is setting up of the project and nurturing it to success.
Perceiving and sensing opportunities:
Sensing entrepreneurial opportunities: Meaning: It is a process of perceiving the needs and problems of people and society and arriving at creative solutions. In this an entrepreneur employs his or her sharpened skills of observation, analysis and synthesis to identify an opening.
Factors involved in sensing opportunities :
To sense opportunity, an entrepreneur employs his skill, observation, vision, knowledge and creativity. The most important factors involved in sensing an opportunity are:
Ability to perceive and preserve basic ideas
Ability to harness different sources of knowledge and information
Vision and creativity
Ability to perceive and preserve basic ideas:
Spotting an idea often triggers the process of sensing an opportunity. The following are the various sources of emerging an idea: (ICICIP)
Problem: Most of the time solution of a problem becomes an opportunity. E.g. Business dealing in generators and inverters grows due to the problem of electricity. A problem gives rise to a business opportunity.
Change: All the environmental changes, be it social, legal or technological, give rise to new business opportunities. e.g products like zero calorie coke, multigrain breads are results of the movement of society towards health consciousness.
Inventions: New products or services lead to new business opportunities. E.g., Pen drives, I -pods, digital cameras are business opportunities brought by inventions.
Competition: Whenever someone tries to beat the competition, they resort to new and improved ideas. This is the only way to survive in the market.
Innovation: It means creating new things of value as well as processes that add value to existing products or services. E.g. Computers to tablets
Ability to harness different sources of information: There are various sources from which information can be gathered, like magazines, books, journals, seminars, trade shows, friends, family members etc. The information gathered from various sources must be analyzed, verified and utilised properly. Many people get the information but only some analyse the information, harness and try to get the best from it.
Vision and creativity: Many people can see the same problem but an entrepreneur is the one who finds its most creative solution with his vision and creativity. With his vision, he converted the solution into a business opportunity. Through their vision and creativity, they constantly: (a) Overcome adversity, (b) exercise control over the business (c) Make a significant difference.
Environment Scanning
Business Environment: Meaning: Business Environment can be defined as all those conditions and external forces to a business unit under which it operates.
Environment Scanning: Meaning: Careful monitoring of an organisation’s internal and external environment for detecting early signs of opportunities and threats that may influence its current and future plans.
“ If you don’t adapt, you don’t endure” Comment.
By doing environment scanning an organisation gather information on changing conditions and incorporate those observations into a process where necessary changes are made. The right information combined with the right adaptations can determine an organisation’s future viability. If an entrepreneur is not aware of the environment surroundings his business is sure to fail.
Importance of Environment/ Significance of understanding Environment/ Importance of Environment scanning (FORBIS)
Identification of Opportunities to get first mover advantage: The businessmen who are able to understand and scan the opportunities of business environment at early stage get maximum benefit or can capture a big share in the market. They can go much further ahead of their competitors. For example, Goodlass Nerolac was the first company to understand that soon there will be a great demand of car painting in India once Maruti will sign contract with Suzuki. So Nerolac prepared itself for that opportunity in advance by signing contract with Kansai Paints, which increased its production capacity to fulfil the demand of Maruti.
Formulation of strategies and policies: Strategies are the types of plan which are made to face the competitors. Environment scanning helps in early identification of threats from competitors, for which counter strategies are formulated to face the competitors. Also opportunities can be capitalised by suitable strategic policies.
Tapping useful Resources: A Businessman must supply goods to market according to demand in the market. To supply output they need input, raw material etc. They acquire raw material and other resources keeping in mind the demand in the environment. Which helps in doing the best utilisation of resources because scanning the environment helps a businessman to know and understand the taste and demand of customers. E.g with the demand for flat screen T.V. manufacturers are collecting resources necessary to manufacture flat screen colour T.V. rather than collecting resources of Black and White T.V.
Better Performance: With continuous scanning of the business environment, companies can easily improve their performance. By making the changes in the internal environment and matching it to the external environment, Organisations can prosper and improve their market share. E.g. Weston company which could not cooperate with the changing environment started suffering loss and lost its name in the T.V. market whereas BPL and Onida did scan the environment well and are still running successfully in the market.
Sensitisation of entrepreneurs to cope up with rapid changes: A keen watch on trends in the environment would help sensitise the entrepreneurs to become proactive towards the needs of customers, changing trends, government policy, technology etc. e.g. Reliance trends keep on changing its clothes with changes in fashion to gain an edge over its competitors.
Image building: If a company is sensitive to the external environment, it will come out with new products and services by or building our better goods and services which help in image building and reputation. E.g nowadays transport companies are offering online bookings.
Environment Analysis:
Meaning: It is the process of monitoring the economic and non-economic environment to determine the opportunities and threats to an organisation.
This process of environmental analysis involves: (1) Data Collection (2) Information processing (3) Forecasting to provide developing goals and strategies for business survival and growth.
Sources of Information for environment scanning / Sources of data Collection for environment scanning:
Verbal information from customers, wholesalers, retailers, distributors, consultants etc.
Records of companies
Government publications
Publications by financial institutions
Formal studies conducted by strategic planners.
The data obtained is processed and analysed with the help of quantitative and qualitative techniques.
The flowchart shows that the opportunity perceived by the entrepreneur has to be tested for its economics viability against important environmental parameters to arrive at a sound business choice .
Types of Environmental Analysis/Business Environment
There are two types of environment analysis done which help in identifying the SWOT (Strength, Weaknesses, Opportunities, Threats)
Internal Analysis/ Internal environment: It is specific to company’s internal strengths and weaknesses. It involves those factors which remain under the control of the entrepreneur. E.g. land, production , capital , top management structure, companies financial resources, its image and brand equity. These factors help in identifying its strengths and weaknesses.
External Analysis/ External environment: These are those factors which put pressure on the firm from outside. These help to identify opportunities and threats present in the environment.
Environmental factors:
Meaning: Entrepreneurship environment refers to the various forces within which various small, medium and large enterprises operates. These factors affect each other.
Business Environment consists of two levels :
Microenvironment
Macro Environment
Micro environment: It refers to those factors which remain under the control of the entrepreneur, which include the targets of the enterprise and its functioning, types of organisation, policies etc. It affects a particular firm and is specific to it. It includes the following Elements: (PICCS)
General Public: A public is any group that has an actual or potential interest in or on an organisation’s ability to achieve its interest. E.g. media public, local public. Etc.
Intermediaries: Market Intermediaries like wholesalers, retailers, transporters, warehouses, financial institution and promoting agencies, all help in flow of goods and services between the business and its final market. Firms cannot survive without them.
Customers: The most influential force which rules the market is customer. Customer needs and wants to have to be understood and goods should be produced to satisfy the consumers. Consumer’s demand may affect the profitability, reputation, goodwill and the expansion plans of the business.
Competitors: These are such factors in the micro environment that provide similar offerings. To remain in competitive, the firm has to not only identify them but also make strategies to move ahead of them.
Suppliers: Necessary resources are obtained from the suppliers thus suppliers and vendor relations, availability of suppliers, affect the business.
Macro Environment: These are the factors that affect the industry as a whole. The macro factors are uncontrollable factors, and therefore the success of a business depends on its adaptability to this environment with the help of microenvironment forces.
PESTEL Model
Political Environment: Political Environment constitutes all the factors related to government affairs such as the type of government in power, attitude of government towards different groups of society, taxation policy, government stability and foreign trade regulations etc. The political environment has immediate and great impact on the business transactions so businessman must scan this environment carefully. E.g. in 1977 when Janata government came in power they made the policy of sending back all the foreign companies. As a result, the coca cola company had to change its business and leave the country.
Economic Environment: Economic Environment includes interest rates, inflation, business cycles, unemployment, disposable income, energy, availability and cost. The Economic factors have immediate and direct impact on the business, so the businessman must scan the economic environments. Economic environments may put constraints and may offe4 opportunities to the businessman. E.g after 1991 new economic policy , lot of opportunities are offered to businessman.
Social Environment: The social/cultural environment includes population demographics, social mobility, income distribution, lifestyle changes, attitudes to work and leisure, levels of education and consumerism. The social environment consists of the customs and traditions of the society, the standard of living, taste and preferences, and the education level of people living in the society in which the business exists. E.g. An entrepreneur wants to start a business of trendy T-shirts, jeans, skirts etc. then he will not open a shop in backward and rural area. He must target the youth of metro cities.
Technological Environment: It is influenced by government spending on research , new discoveries and development, government and industry focus of technological effort, speed of technological transfers and rates of obsolescence. The technological environment refers to changes taking place in the method of production, including the use of new equipment and machinery to improve product quality. The businessman must closely monitor the technological changes occurring in his industry because he will have to implement these changes to remain competitive in the market. E.g Colour T.V. technology has closed the business of black and white T.V.
Ecological Environment: It considers the way in which organisation can produce its goods and services without or with minimum pollution and with minimum environmental damage. It includes concern about the impact of carbon emission from jet engines, noise, resistance to airport expansion etc.
Legal environment: Legal Environment constitutes the laws and various legislations passed in the parliament. The businessman cannot overlook the legislations because he has to perform business transactions within the framework of the legal environment. It includes areas such as taxation, employment, law, monopoly, legislation and environmental protection laws. E.g. Advertisement of alcoholic products is prohibited., Compulsory to give statutory warning on tobacco products.
Problem Identification:
Meaning: When there is a road block in a situation, which poses a conflict and forces you to find a solution then this road block is a problem and when one identifies this road block, it is called problem identification.
Objectives of problem identification:
It should clearly state the problem
It should identify the target group facing the problem.
It should find the market acceptability of the solution to the problem.
Uses of Problem Identification:
Problem Identification helps the entrepreneur in the following ways:
To understand the needs and problems of the market.
To bring out new product in the market.
To become creative.
To increase employment generation.
To increase national income of the country.
Idea Generation:
Meaning: Idea generation is a process of creating developing and communicating ideas which are abstract, concrete or virtual. It includes the process of developing the idea through creativity and innovation and bringing the concept to reality.
Sources of Business Ideas/ Business Ideas are an outcome of:
Careful analysis of market research
Careful analysis of customer needs.
Serendipity i.e. creation of something or discovery through accident.
Exploring the ways of getting ideas
Idea Fields:
Meaning: Idea fields can be defined as ‘ Convenient frames of reference for streamlining the process of generation of ideas. Idea fields help in enlarging the scope of thinking and also gives the entrepreneur with the benefit of structuring ideas based on convenient frames of reference.
Sources of idea fields: (NESTCM)
Natural Resources: Ideas can be generated based on natural resources. A product or service may be desired from forest resources, agriculture, horticulture, minerals, marine or aqua minerals, animal husbandry, wind, sun, and human resources. E.g. If we think of getting ideas in the field of forest resources, we can think of forest produce, wood based products etc.
Existing products or services: Another field to generate new ideas can be improving the existing products and services. We can use the latest technology in existing products or make them cheaper by producing them with cost saving method etc. thinking about innovative ways of packaging etc. A great business idea combines skill with imagination and market demand. Entrepreneur who look at the ways to make an existing product or service better can be as successful as those who create and invent products. E.g In case of Britannia Breads the company is constantly improving on its existing product and bringing out new variants like Atta bread, multigrain bread, garlic bread.
While it may seem like only good can come from improving , adding to, or changing different products around, This is not always the case, It must be done skillfully or else other problems can arise. It can benefit the business in the following manner:
Keep up with the competition: If the products or services are of constantly changing nature, you have to stay aware of the changes and adopt such changes. This will help an entrepreneur to stay ahead than his competitor.e.g In case of a mobile manufacturing unit, the manufacturer has to constantly upgrade his process with the change in technology.
Increase Sales: Upgradation and Improvement in existing product line can help an entrepreneur to increase his sales, which can further lead to increase in profits. So the change should be such that it should help in increasing the revenue of the business. E.g Publishing house engaged in the publication of competitive books ventures into school books. The addition in product line will definitely increase the revenues of the firm.
Market or demand driven ideas: One of the important methods of generating idea is Market research. While assessing the market, an entrepreneur has to prepare details about demand (taste of consumer, fashion), trends od supply ( Quantity supplied by already existing suppliers), and customer preference. Market research is an organised effort to gather information about target markets or customers. It includes social and opinion research and is the systematic gathering and interpretation of information about individuals or organisations using statistical and analytical methods and techniques of applied social science to support decision making.
Difference between Market Research and Marketing Research:
Marketing Research is concerned specifically with marketing processes.
Market Research is concerned with Markets
Trading-related ideas: Trading means buying of goods and services and selling them to consumers at profit. Advantages of trading are that is less risky and easy to launch.Today the scope of trade has enlarged to local trade, import trade, export, e commerce , Umbrella markets, departmental stores, chain storesetc. The trader must be aware of the trend in the market. The trader must study in detail the needs and wants of customers to win over the competitors. To survive in the market new entrants will have to acquire skills, competencies and knowledge required to launch , manage, and expand business opportunities.
Service sector Related Ideas: Service sector refers to providing services either by entrepreneur himself or by hiring some employees. Entrepreneur must own the enterprise and provide service through his enterprise. The reason for service sector being the most growing field now a days is emerging knowledge societies and advancement in information and technology. Some of the interesting opportunities in service sector are as follows:
(Page-13, 14 from CBSE Book)
Creative Efforts: Creativity is an important idea field. It is not only used to spot and harness opportunities. It can also be applied to develop new products and services. Two businessmen can have same qualification, same capital and same products but the entrepreneur with creativity and skill will always have an edge over the other businessman. Generally creativity comes as a result of problem solving. Whenever people face problem, to overcome those problems new products and services are created. Eg. In hilly areas farmers created step farming as a solution of problem they faced during growing crops.Creativity can be used in the following ways:
For developing new products and services
Improving an existing product or service
Inventing new method to manufacture a new product
Finding new market for already existing product
New use of an existing product or service.
Product Identification:
Meaning:After opportunity spotting and scanning of the environment, an entrepreneurial idea should lead to a definite product it is called product identification..
After generating the idea with the help of various idea fields, the next step is to scan the environment to check its viability( to see, whether its really possible to start this business or not) and taking steps to ensure that idea leads to development of product.
Process of transforming idea into opportunity/ Process of transformation of idea into a viable opportunity: While the initial spotting of idea (Basic idea) is of random nature, the development of idea after scanning the environment (post scanning idea) is a more purposeful activity.
Difference between Basic idea and post scanning idea
Basic Idea
Post scanning idea
1
Initial spotting of idea a random activity.
The development of idea after environment scanning is a purposeful activity.
2
Basic idea is experimental process
Post scanning idea is a strategic process
The following process shows that strategic positioning is required to convert an idea into opportunity
Strategic Positioning: Meaning: It means that knowledge, creative thinking, competencies and skills of an entrepreneur are backed by a thorough processing of idea through close examination, evaluation, analysis and synthesis leading to, an idea evolving as an opportunity.
(Do diagram from book: pg. 17)
( just for understanding: In simple words: Ideas are generated on the basis of knowledge, creative thinking, ability and skill of the entrepreneur and after that he does the close examination, evaluation in terms of finance, availability of resources, practicability of idea to decide that whether he should convert idea into opportunity or not).
Idea and opportunity assessment process/ Steps involved in the investigation of ideas/ steps to identify feasible opportunity
(Just for understanding: In this topic we will see whether this selected idea can be good, sound business opportunity or not)
The process of testing ideas for assessing their opportunity potential can be divided into following steps: (PALCo CoTA)
Step-1: Product identification: An idea should lead to a definite product/ service which he can sell. First step is to find the product or service which is suggested by the idea to, find out its market,i.e how many such products are already available in the market and what difference your product will be offering.E.g many pendrives are available in the market, but if u make it avaible in the form of bracelet or pendent , it will be more in demand
Srep-2: Application and use: It is important to clearly define the real life utility your product or service will be offering i.e what extra value you can offer to a customer. If it is an existing product modification should be proposed that should lead to better use. E.g we can give a jewelled pen drive.
Srep-3: Level of operation: Depending on the use of the product,type of the product, skill, use of labour, the entrepreneur will decide tge level of operation, ie. To whether he will produce it in cottage industry, small scale industry, or large scale industry.
Step-4: Cost: The entrepreneur must calculate the the cost of the product at particular level for operation and compare it with the competitors costs. This will help him to decide the sale price also.
Step-5: Competition: The entrepreneur must study the competitor in the market by doing competitor analysis.i.e by analysing their demand and supply position.
Step-6: Technical complexities: The entrepreneur must assess the kind of technology required to make the products. Whether that technology is available or not, whether training to use that technology is available or not.
Step-7: Annual Turnover: Annual Turnover means annual net sales. Entrepreneur must try to assess the expected annual turnover from the product or service to estimate the profit.
Market Assessment/ Factors involved in assessing in the market while selecting a product or service: (DSPC)
Selection of a product or service will depend upon many factors. While assessing the market, an entrepreneur has to prepare details on the following lines:
Demand: The entrepreneur must assess the size of market i.e. whether it will involve local market, national market or international market. In market he must assess the target group of customers and their preference and tastes.
Supply and Nature of competition: Supply position means total quantity of products made available by the existing players. He should take into account the quantities of possible supply from the new entrants.
Cost and price of product: The entrepreneur must calculate the cost of the product and then compare it with his competitors and to find out how can he keep the cost low to stay ahead than his competitor. E.g. If the transportation cost of a competitor is very high, the the entrepreneur should make sure to save on his transportation cost to to gain an advantage over his competitor.
Project innovation and change: The entrepreneur has to continuously keep a watch on technological changes and innovation, otherwise he or she will lose the market because the product will not be as per the trends, quality available in the market.
Trend Spotting:
Meaning :Trend spotting refers to the Identification/recognition of the latest market trends. It helps the entrepreneur to bring changes in their products or services in accordance with the trends prevailing in the market. The success of the enterprise depends on the effectiveness of the trend spotting.
Entrepreneurs identify the trends themselves or with the help of the trend-spotter. In general trend spotting takes places through one of the following activities. It includes but not limited to. (RTWT)
Read trends: Entrepreneurs spot the trends by reading through various sources like
Online resources like websites, influential bloggers, e-mail newsletters, websites etc
newspapers, magazines and other publications like industry publications.
thought leaders who are experts in a particular industry or sector
Usually these trends originate from international cities like London, Paris and Tokyo. So entrepreneurs keep an eye on the changes in the trend taking place in these places. Not all trends will be useful. Entrepreneurs use their discretion to make quick decision regarding accepting or discarding these trends.
Talk trends: Entrepreneurs discuss about the trends with
Entrepreneurs who have similar interests : In-person discussions usually take place at their industry specific trade association events or conferences etc. In addition to this they also participate in social networking sites, forums, discussion groups, smart phone apps etc. Usually they take advantage of the existing networks. It is also possible that they start their own online discussion platforms.
Discuss with the customers : They discuss with the customers both online and offline. Customer inputs are procured through social networking sites, surveys, forums, discussion groups. The trends are also spotted by observing consumer opinions in the ratings and reviews sites.
Watch trends: The trend among the consumers can be perceived by visiting the frequent hang out locations of their consumer group like
a shopping mall
eateries
trade shows
cinemas
college campuses
marriages
The entrepreneurs spend time watching what their consumer group is eating or drinking or wearing or showing interest in.
Think trend: All the information gathered through reading, discussion and careful observations is analyzed. This help the entrepreneur to build trend-spotter-brain. The analysis will open up connections between different observations which will help in coming up with a potential entrepreneurial opportunity by improving an existing product or service or coming up with a new one altogether.
Creativity:
Meaning: Creativity is the first stage in the process of innovation, providing the stimulus for opportunity discovery and new venture creation.
The creative process:
Creativity is important to entrepreneurs. The process of creativity involves the following steps: (IPIIVI)
Idea germination: It is the stage where an entrepreneur recognises that an opportunity exists. The creative idea emerges from deep interest or curiosity of the entrepreneur. He then explores and exploits to its best potential. The idea can also germinate from the need to find a solution of a problem. If the perceived problem is motivated enough to capture the individual’s interest, then it leads to stage II
Preparation: The idea germinated in the above step is evaluated and a solution is identified. If the solution leads to an innovative product or service, market research is performed to identify the opportunities to exploit the idea. Once it is concluded that the idea has potential growth opportunity, the entrepreneur will proceed to next stage
Incubation: In this phase, all required information is gathered from various sources. The information is analyzed to evaluate the various pros and cons of implementing the idea. If the Entrepreneur feels here positives of the idea are more than the negatives, then he moves for next stage
Illumination: In this phase, a detailed plan to implement the idea is laid out. The entrepreneur will start accumulating the capital, procuring the raw material, laying out the process, deciding the policy etc starting out.
Verification: In this stage, the idea is turned into reality and the entrepreneur will start monitoring the outcome. The entrepreneur will start seeing obstacles and take necessary steps to overcome the obstacles, to move the enterprise towards its goal.
Innovation:
Meaning: Innovation can be defined as a process followed by an entrepreneur to transform an idea into a commercially viable product or service. Following are the Elements/ Steps in the innovation process: (AOIC)
Analytical Planning: Do a thorough analysis and
Identify the features of the product or service
Identify the design
Identify all the resources required to implement
Organising resources:
Arrange all the required resources like
money
machine
Man Power
Material
Technology
etc. Organize the accumulated resources.
Implementation: Use the organized resources to implement the plan and start manufacturing a product or providing a service.
Commercial application:
Supply the product or service to the customer.
Make profits
Recognize and reward the employees
Share profits with the investors and other stake holders.
IMPORTANT NOTE: Wherever there is diagram and flow chart in the CBSE , cosider it as part of the answer and it is compulsory to draw that diagram and flow chart otherwise marks will be deducted.