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3
FACTORS OF SUCCESSFUL BUSINESS
CONTENTS
3.0 Aims and Objectives
3.1 Introduction
3.2 Issues in Business Start-up
3.2.1 Idea Formulation
3.2.2 Opportunity Recognition
3.3 Timing of Decision
3.4 Factors for Successful Business
3.4.1 The Business Concept
3.4.2 Understanding the Market
3.4.3 A Healthy, Growing and Stable Industry
3.4.4 Capable Management
3.4.5 Able Financial Control
3.4.6 A Consistent Business Focus
3.4.7 Ability to Attract, Motivate and Retain Employees
3.4.8 A Mind Set to Anticipate Change
3.4.9 A Company’s Values and Integrity
3.5 Avoid Business Failure
3.6 Essentials of a Successful Business
3.7 Let us Sum up
3.8 Lesson End Activity
3.9 Keywords
3.10 Questions for Discussion
3.11 Suggested Reading
Insufficient funds or Over optimistic Insufficient func- Problems with Excessive overheads
access to top-up fi- estimates of mar- tional breadth. maintaining qual- (relative to scale of
nance. ket penetration & ity standards. operations)
shares.
Wrong mix of funds Delays in securing Unresolved differ- Restricted range High operational
(e.g. too much debt or developing dis- ences of opinion of offerings. costs and/or low
and gearing too tribution channels. productivity.
high).
trade credit (receiv- the strength of expectations. innovation (me- capacity utilization.
ables). competitors too offerings).
Mistaking profit for Misreading cus- No formal or clear Problems sourcing Inadequate physical
cash flow (see here). tomer require- structures. supplies. distribution.
ments.
Overoptimistic pro- Lack of promo- Ineffective finan- Offerings out of Inappropriate busi-
jections or overtrad- tion & customer cial & managerial line with customer ness location.
ing. awareness. control systems. needs.
Clearly, there are very many other reasons as to why businesses fail. The key point is
that causes are usually very apparent (especially with hindsight) and the trick is to anticipate
them by executing appropriate strategies at the outset. Three examples:
Use market research to confirm demand and assess suitability of proposed offerings.
Create a management team to offset any gaps in experience or expertise.
Raise equity to reduce exposure to interest rate changes, reduce gearing etc.
Given that reasons for failure are often both simple and clear, it should (in theory) be
possible to reduce the possibility of failure through prior experience, forethought and
effective planning.
Modern economy is complicated and very elaborate. There are many uncontrollable
factors affecting the prospects of any business. We may enumerate the significant factors
demanding special attention to make any business successful and flourishing:
1. Objectives: Every business enterprise must have a set of objectives or goals to be
achieved - primary or main objectives as well as secondary or subsidiary goals.
These objectives point out where we have to go and what is our destination or
target. Objectives should be the first consideration in organisation planning. They
determine the plan of action or the work to be done.
2. Planning: Modern business activity is based on predetermined plans, policies and
programmes formulated on the basis of intelligent forecasts about the future events.
Planning assures reasonable success in any business. It reduces risk of loss or
uncertainty. Of course, plans must be based on reliable, adequate and up-to-date
information reflecting the past, present, and future conditions.
3. Location, Layout and Size: Favourable location, proper plan layout and appropriate
size of the business can assure minimization of costs and maximisation of profits in
a competitive or free market economy.
4. Financial Resources: Finance is the life-blood of modern business. Adequate
short-term and long-term funds assure solvency as well as normal growth or
expansion. Liberal and cheaper finance must be made available for any business.
5. Efficient Organisation: An organisation is a medium for effective conduct and
management of any business. An organisation is a structured process in which
persons interact for objectives. It is defined as the division of work among people
whose efforts must be co-ordinated to achieve desired specific objectives. A sound
organisation evokes willing co-operation of employees and provides best
communication channels for proper decision-making. It ensures teamwork. Mere
collection of people at a place or mere going together in one direction is not an
organisation. Hence, people in a bus queue or in a railway coach do not form an
organisation. The three essentials of an organisation are : (1) people competent
and willing to work together; (2) common purpose or goal to be achieved through
joint efforts of people; (3) physical facilities and equipment necessary for doing the
work.
6. Good Management: Management plays a very important role as a central organising,
planning, controlling and co-ordinating agency or authority for directing effectively
any business. Management is responsible for judicious and conscious as well as
orderly arrangement of various resources such as men, money, machines, materials
for the production and distribution of goods in the home or even foreign markets.
Management provides entrepreneurial ability (risk-bearing ability) and managerial
skills. Competent management is a firm’s single most important resource. In fact,
even a flourishing sound business may go to the brink of insolvency, if we have
incompetent and fraudulent managers. Management also provides leadership for
getting things done through other people.
7. Employee Morale: Modern business demands collective enterprise. If employees
are well-treated and offered all the amenities to ensure job satisfaction, and if they
develop a sense of belonging to the organisation, they will put their heart and soul in
their work and employee morale will be high. Ease of work gives speed of work. It
is the responsibility of management to devise ways and means (job rotation, job
enlargement, wage incentives) to achieve labour co-operation and goodwill.
44 8. Best Marketing System: Mass production is done scientifically. We also need a
Business Plan and Ethics
scientific or systematic distribution system to sell our goods at a profit in mass
markets. All marketing plans and policies today are customer-centred and not
product-centred. Consumer frustration and dissatisfaction will indicate failure of
our marketing system.
9. Innovation: Fundamental research and applied product development provide
innovation. Innovation or change is the essence of progress. Unprecedented
development of science and technology demands continuous business research to
keep ourselves up-to-date. Similarly, ever-changing consumer demand needs
marketing research to adapt our production to changing market needs. Top
management gives special attention to R & D in integrated business planning.
Research and development alone can help a business planning. Research and
development alone can help a business to face successfully keen competition in the
market. Creativity is now recognised an important managerial function.
10. Equipment and Machinery: Modern business requires proper man-machine
organisation. Physical facilities, equipment, machinery, etc., contribute a lot for
business prosperity. Productivity depends upon the best technology. Business is a
unique combination of technical, human and managerial resources. Technical
resources include machinery, equipment, materials and finance. Human resources
include men and women working in the enterprise. Managerial resources include
executive leadership at all levels to co-ordinate and control all other resources
effectively. Business is now recognised as psycho-social technological system.
Imagine two different restaurants on the same street, both with basically the same business
mission:- providing good, fast food, priced at only a few rupees a meal.
The first restaurant is a national burger chain and the second one is a diner.
What kind of management style do you suggest to attract customers and retain employees?
3.9 KEYWORDS
Mile Stone: A particular business achievement by which a company can be judged.
Venture Capitalist: Individual or firm who invests money in new enterprises.