bowen university iwo bus 310: management of small …
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BOWEN UNIVERSITY IWO
BUS 310: MANAGEMENT OF
SMALL-MEDIUM ENTERPRISES
Lecture Notes BY Dr. Oluwabunmi Falebita
Business Administration Programme,
College of Social and Management Sciences
COURSE LECTURER’S DETAILS
Name: Dr Oluwabunmi A. FALEBITA
Mobile / WhatsApp Number: 08033825150
E-mail: [email protected]
Room/Office Number: College of Social and Management
Sciences Building ground floor Room 021.
Industry Analysis
Industry analysis is a market assessment tool used by businesses
and analysts to understand the competitive dynamics of an
industry. It helps to understand the position of a company relative
to other participants in the industry.
Procedure for undertaking an industry analysis, entails the
following:
Detailed research: defining your market
Identify & Examine your competitors
Evaluate your position
Some methods include:
1. Competitive Forces Model (Michael Porter’s 5 Forces)
2. Broad Factors (PEST Political Economic Social and
Technological) Analysis
3. SWOT Analysis: Internal & External.
Group Activity:
1. Group 1: Industry analysis (Akande, Ajani, Mimiko)
2. Group 2: Competitive Forces Model (Michael Porter’s 5 Forces)
(Bandele, Balogun, Fawumi)
3. Group 3: Broad Factors (PEST Political Economic Social and
Technological) Analysis (Makinde, Osagie, Adeniji, Fasuba)
4. Group 4: SWOT Analysis: Internal & External (Thikan, Ayanniran,
Olowu, Rejoice).
5. Group 5: Business growth strategies: Market penetration, Market
development/expansion (Adeleke, Adebisi, Okore, Etokudo).
6. Group 6: Diversification, Acquisition of other businesses, mergers
and acquisition (Ologbese, Adesunloye, Okunbo, Edem).
7. Submission to my email should be on or before Tuesday13th
July, 2021 by 12.00pm and presentation will be in class on
Thursday 15th July, 2021.
8. Note, presentation will be graded (total of 20 marks) on the
following: team work, appearance, submission content and
formatting, knowledge of the subject matter, references.
Pricing
Price is an important element of the marketing mix. It can beused as a strategic marketing variable to meet competition. It is
also a direct source of revenue for the firm. It must not only cover
the costs but leave some margin to generate profit for the firm.
However, price should not be so high as to frighten the
customers.
Determinants of Pricing include;
Cost
Demand: most of the time, there is an inverse relationship
between price and quantity demanded, provided that otherfactors are kept constant.
Competition: this depends on prevalent conditions, such as
Monopoly, pure competition, Oligopoly,
PRODUCT
Product: A product is the key marketing mix variable around which all theother marketing mix variables revolve.
Levels of product (see figure):
Core benefit: fundamental service or product that a customer is buying.
Basic product: are the tangibles derived from the core benefit.
Expected product: attributes customers expect when purchasing a product.
Augmented product: addition to exceed customer expectations.
Potential product: future augmentations.
Marketing Mix
Channels of distribution: channel of distribution is used to refer tothe various intermediaries who help in moving products from the
producer to consumers. Channels of distribution can be grouped
as: A. Direct Selling by Manufacturers and B. Indirect Selling
through Middlemen.
Selecting an appropriate channel for distribution depends on the
following:
Type of product
Nature and extent of the market
Competitive characteristics
Distribution costs
Determining the competitive positioning best adopted by a small
firm.
Positioning is one of the fundamental elements of marketing forall types of businesses. It is a brand/ business’ unique way of
providing value to its customers. It is used to create an image of
a brand’s product or service in the mind of a target customer.
When a product or service is effectively positioned, it gets a USP
(Unique Selling Proposition).
Let’s assess McDonalds for example: their USP targets family, they
position themselves as a family-friendly restaurant, by having
children’s menu items, free toys with every kid’s meal,
playgrounds etc. Assess Toyota, Porsche, Volvo, Benz etc.
Positioning can be based on any of the following:
1. Product characteristics
2. Price
3. Quality or luxury (Rolls Royce).
4. Product use or application.
5. Based on competition: highlights a key difference their products
offer in comparison to others.
Determining the competitive positioning best adopted
by a small firm.
Competitive Positioning strategies could also include:
1. Market Profile
2. Customer segments
3. Value delivery.
Business growth strategies:
1. Internal: Market penetration, Market
development/expansion, Product development/
expansion, Diversification, Acquisition of other
businesses, Modernization.
2. External: Mergers, Joint venture.
SWOT ANALYSIS How to conduct a SWOT analysis: this entails an overall
assessment of a business to identify both the potential
advantages as well as disadvantages and challenges of a
business.
It stands for:
Strengths: may include specialized management skills, a
productive and well-trained workforce, enough capital,
adaptability to changing environment and so on.
Weaknesses: may include may include an obsolete product
range, unacceptable levels of pilferage and lack of capital.
Opportunity: surge in population, pandemic outbreak, new
consumer tastes or preferences,
Threats: a drastic fall in the Naira/dollar exchange rate,
pandemic outbreak, unrest, kidnapping and insecurity etc.
CLASS ACTIVITY ON SWOT ANALYSIS You are the owner of Yetty‘s Pizzeria in Yaba, Lagos State, Nigeria. Your
business has been operating for the past four years and made a
handsome profit, in the first three years. However, the current year‘s sales
figures are bad with a 30 percent decline in turnover. Yesterday evening
you heard from the news at 9.00pm and heard about the following
major developments in the economy:
A decline in the inflation rate of 2 percent for the year.
A decrease in the interest rate of 2 percent for the past year.
An increase in unemployment of 5 percent, with specific reference to the
high level of unemployment in the country.
A growth in fast-food enterprises of 20 percent over the last year.
A decline in the per capita personal disposable income of 10 percent
during the last year.
New legislation whereby more females must be employed in the existing
workforce.
A Consultant at the small business corporation has advised you to
conduct a SWOT Analysis, Draw up a list of the strengths and
weaknesses, and current opportunities and threats of your business.
SME FINANCIALS Financial plan: refers to a document containing the current
monetary situation of a business , and the long-term monetary
goals, as well as strategies to achieve the goals.
Cash flow: is the net amount of cash and cash equivalents being
transferred into and out of a business during a period of time.
Sources of funds: The major sources of funds include: Cash
introduced by owner(s), Available loan to business, Sale of assets,
Income from operations.
Uses of funds: Owner’s withdrawals, loans, repayments, purchaseof assets, losses from operations, payment of taxes, payments or
disbursements such as rents, allowances, salaries etc.
Location: is the physical setting or site for situating a business.
Layout: is the arrangement of physical facilities of a business.
Techniques for enhancing profitability: increasing turnover,
productivity and efficiency, increase or expand product lines,
increase customers, increase in sales, reduction of wastes,
decrease in costs.
SME FINANCIALS Budgeting: is a systematic approach for achieving management
performance. A Budget is a comprehensive and coordinated plan,
expressed in financial terms, for the operations and resources of an
enterprise for some specified period in the future, usually for twelve
months. Such planning activities should include: assets and the sources
of funds (revenues, expenses) and uses of funds. The success of a
budget depends greatly on the control instruments or mechanisms put in
place, hence, the need for budgetary control. It has merits and
demerits.
Purpose of budgeting:
To state a firm‘s expectation categorically and unambiguously
To reduce inherent risks and uncertainty
To provide a parameter to measure and control the performance of
individuals and units in the organization
To provide a means to effectively communicate organizational
expectation to all parties
To help employees in coordinating resources and projects.
Budget Preparation: a comprehensive budget should include the following;
sales budget, production budget, purchasing (raw materials) budget,
labour and cash budget.
SME FINANCIALS Ratio analysis: Financial ratios: Financial ratios are mathematical
comparisons of financial statement used to analyse a business‘
financial standing. Financial ratios can be classified into the following:
liquidity ratios, solvency ratios, profitability ratios and efficiency ratios
(also called activity ratios or asset utilization ratios). Other categories
include cash flow ratios, market valuation ratios, coverage ratios.
Liquidity ratios: is the ability of a business to convert its assets to cash and
pay off its obligations without any significant difficulty. It explains the
financial position of a business. E,g cash-conversion cycle.
Solvency ratios: is the long-term financial viability of a business, that is ability
to pay off its long-term obligations such as bank loans, bonds payable, etc.
Information about solvency is critical for banks, employees, owners,, etc.
E.g Debt ratio.
Profitability ratios: is the ability of a business to earn profit for its owners. it
measures the financial performance of a business. E.g Net profit margin.
Activity ratios: assess the efficiency of operations of a business. E.g
Inventory turnover ratio.
Cash flow ratio: is used to assess the quality of earnings of a business.
Coverage ratio: are supplementary to solvency and liquidity ratios and
measure the risk inherent in lending to the business in long-term.
SME FINANCIALS Break-even analysis: entails the calculation and examination of
the margin of safety for an entity based on the revenues
collected and associated costs. It is used to determine the level
of production and sales target.
Break-even chart: Break-even chart (BEC)has been defined as,
“a chart which shows the profitability or otherwise of an
undertaking at various levels of activity and as a result indicates
the point at which neither profit nor loss is made.” Also called
Cost-Volume-Profit graph (CVP-graph). It depicts the following:
(a) Cost (i.e. Fixed, Variable and Total); (b) Sales value and
Profit/Loss; (c) Break-Even Point; (d) Margin of Safety. It is a graph
that shows: Activity or volume of production plotted on the ‗X‘
axis, while cost and revenue are plotted on the ‗Y‘ axis.
Types of BEC, depending on the purpose: (a) Detailed Break-Even Chart; (b) Control Break-Even Chart; (c) Cash Break-Even
Chart; and (d) BEC to ascertain the optimum volume.
Advantages of BEC: easy to construct and understand, useful
guide for management, helps to select the most profitable
product mix, helps to determine the strength of the business.
SME INFORMATION Information definition: Information is useful data that can
influence a business or someone‘s choices and behaviour. Raw
data are basically facts and figures.
Characteristics of information include: Accurate (correct),
Complete, Relevant (useful), and Timely.
Costs of Information:
Acquisition costs; this is the cost of obtaining data that you don‘t
have.
Processing costs; this is the cost of turning raw data into usable
information.
Storage cost; the cost of physically or electronically archiving
information for later use and retrieval.
Communication costs; this is the cost of transmitting information
from one place to another.
Importance of information: It helps to gain strategic advantage
as the first-mover, sustain competitive advantage, aids businesssurvival, helps business growth.
SME INFORMATION Sources of information: Internal and external Sources: Internal source: Internal information
consists of data created for the sole use of the company that produces it, such as personalfiles, trade secrets etc. These include:
Financial information; this information is related to the performance, profit and loss of thecompany. This will include information such as how much you pay for items, staff salaries andwages, the costs of taxes etc.
Personnel Information: Personnel information is information held by the company on theiremployees. This information must be freely available to the employee any time that they requestit. It can be used to monitor length of service of an employee, employee productivity, employeetrainings etc.
Marketing Information: is used by the market team to identify what products or services offered
by the business are most successful, information on sales can guide promotion of certainproducts or services, it can be obtained using external sources or customer surveys, and can beused streamline or improve the business and keep customers happy.
Purchasing Information: Purchasing information is collected by the purchasing department whoare involved with buying all the products needed to run your business, such as stationery,computers, machineries etc. Costs and quality of such purchases must be monitored to maximizeprofits.
Sales Information: needs to be monitored based on the product or services offered by thecompany.
Manufacturing information: is information about the cost of manufacturing goods within thecompany, such as the running cost of all machinery, wages paid to production staff and the costof raw materials (including waste) used up in the manufacturing process.
Administration Information: involves communicating with external sources and storing informationon customers to build successful relationships with them.
SME INFORMATION External source: refers to information made available to the
public through third-party. Such sources include:
Government: Information supplied by the government is coming
from a reliable source as this is the governing body that they
business operates within. Companies need to use important legal
information from the Government to help run the
business successfully and legally. E. g Minimum wage, government
grants, policy etc.
Trade Groupings: A trade grouping is a group of businesses that
operate within the same sector and not within the same location.
E.g Technical trade association, Farmers’ association.
Commercially Provided Information: Companies can use
commercially provided information to help them make the correct
business decisions. E.g no of flight to and fro airports will be useful for
hotels, sales figures or profit declaration of other competing
companies.
Databases & Research: Many companies can make money
creating this information by analysing currently available sales
statistics in business sectors.
SME INFORMATION
Definition of an information system: Laudon and Laudon (2012)define Information systems as interrelated components working
together to collect, process, store, and disseminate information
to support decision making, coordination, control, analysis, and
visualization in an organization.
Components of an information system: are of these five
components; Technology (hardware, software, data), people,
and process.
Technology: comprises hardware, software and data.
Hardware: is the part of an information system that can be
touched, e.g. monitor, laptops, keyboards etc.
Software: is a set of instructions that tells the hardware what to do, it
is intangible and cannot be touched. It can be categorised into
operating-system software (e.g. Microsoft windows, and Android)and application software(e.g. Microsoft Excel, Angry birds etc.).
Data: is a collection of facts, which are intangible, e.g. your street
address, the city you live in, and your phone number
FURTHER READINGSTEXT BOOKS
1.Total Quality Management: Dale.H.Bester field, Publisher- Pearson
Education India, ISBN:8129702606
2.Total Quality management for Engineers: M. Zairi, ISBN-1855730243 Publisher- Wood head publishing
REFERENCE BOOKS
1. Managing for Quality and Performance Excellence by James
R.Evans and Williuam M Lindsay, 9th edition, Publisher Cengage
Learning.
2. A New American TQM, four revolutions in management, Shoji
Shiba, Alan Graham, David Walden, Productivity press, Oregon,
1990
3. Organizational Excellence through TQM, H. Lal, New age
Publications, 2008
4. Laudon .K.C. and Laudon. J.P. (2012) Management Information
Systems, twelfth edition, Prentice-Hall, ISBN-13: 978-0132142854
5. Bourgeois. D.T. (2014) Information Systems for Business and beyond;