BBA 3004

Small Business

Management

KHOO YU TING

921227015896

200080

MR. LOH YONG CHIANG

OCTOBER 2013

TABLE OF CONTENT
 TOPIC PAGES

1 Contents 2

2 Factor an idea for a new venture is a good 3-5

investment opportunity

3 Reason for starting a new business from 6-9

scratch rather than buying affranchise or
an existing business
Different types and sources of start-up
4 10-12
ideas
External and Internal analyses that might
5 13-15
shape new venture opportunities
Broad-based strategy options and focus
6 16-20
strategies
Conclusion
7 21-23

8 References 24

9 Coursework 25-34

2.0 Factor an idea for a new venture is a good

In order to determine if the new venture has the potential to become a viable business

opportunity, an entrepreneur should be willing to undertake a vigorous opportunity

Page 2 of 35
evaluation process. The screening involves answering a series of questions that shed light

on the potential for the idea to actually become a product or service upon which a

business can be created. Entrepreneurs who fail to evaluate their venture often discover,

after they have invested a great deal of time and money, the answers to the questions that

the opportunity evaluation process would have revealed. When the idea becomes reality

in the form of a product or service, how will this new product or service differ from what

the market already has? Second, how will the product create value for the buyer or end

user? What, exactly, do we know about the buying behaviors of the marketplace?

The evaluation of an opportunity always begins with the basic questions whose answers

help the entrepreneur determine the magnitude of the opportunity. The search hopefully

reveals that the product or service is dramatically superior to existing offerings in the

market in ways that create value for the buyer and do not require a significant alternation

of use patterns by the consumer. If the new product or service achieves these outcomes,

the entrepreneur has a product or service with exceptional promise. This part of the

analysis involves asking a series of questions about the idea. First, how is it different

from the existing products or services presently being offered in the market. If the answer

is at either extreme, either very different of no differences, a potential problem could

exist. If there is little new about the product or service, it will be difficult to convince

existing buyers to switch from what they are presently purchasing. If the product or

service is dramatically different from what the market is presently using, there may

initially be strong resistance to change from what is known, to a product that is so

different from what is now in use. The analysis needs to uncover the sources of resistance

Page 3 of 35
 to change and attempt to quantify the degree of difficulty anticipated in overcoming the

resistance among early adopters.

Assessing the market potential of your new venture concept is a critical component of

any feasibility study. A serious miscalculation many entrepreneurs make is to assume that

because their idea appeals to themselves and their family that other consumers will also

like their product/service and therefore purchase it. Comprehensive, unbiased market

research will assist you in determining the true viability of your of your new venture idea.

Through market research, you will gather and refine information about:

Customers

Market size

Industry

Competition

Customer profiles

A thorough understanding of your potential customers is essential to the success of your

new venture. When defining who your customers are, you may be tempted to describe

them in the broadest terms as all individuals who might use your product/service. By

doing this it gives you the impression you have an exceptionally large market when in

reality you may only have a niche market. Since the success of your new venture depends

upon your ability to meet your customer's needs and wants you must clearly define your

target market.

Who are your customers?

Where do they live?

Page 4 of 35
 What are their needs and tastes?

What can they afford?

Market Opportunity - most early stage venture investors look for companies addressing

large markets. The venture capital metric is return on investment, or dollars invested to

reach a liquidity event (IPO, Acquisition) versus dollars the investor receives at the

liquidity event. As such, the companies must be equity based, and the addressed market

must be large enough to justify the millions or tens of millions of investment dollars

typical for an early stage technology company.

3.0 Reason for starting a new business

Challenges

Page 5 of 35
Setting up a business presents obstacles that you would not otherwise face if you

continued working for someone else. These include keeping track of your finances, hiring

and managing staff and conducting market research.

Learn new skills and knowledge

In order to overcome the challenges you will be presented with in your business venture,

you will pick up new skills and enhance existing ones.

These include time management, organisation, communication, teamwork, accounting

and numeracy, giving presentations, business planning, developing a brand, and website

design.

Be your own boss

its your business, so whatever you say, goes! Some people dont like working for others

because they dont agree with their bosses decisions or just dont like the feeling of

being told what to do all day.

Its true that most entrepreneurs will tell you that they could never go back to working for

someone else!

See the direct results of your labour

Being in charge means you can get things done your way. This means doing what you

want with your business on a daily basis, and knowing that your actions have achieved

any success you make.

Interest and enjoyment

Page 6 of 35
if youre bored of sitting behind a desk at work, dealing with snippy customers or

avoiding your constantly complaining boss, doing something you love every day seems

like an attractive exit option.

If you have a well-constructed business plan and think there is a gap in the market you

can plug with something you enjoy doing, then its worth taking the leap.

Efficiency

Running your own business means you get to lay down the deadlines.

Youre on your own, so its up to you to be self-disciplined enough to get things done on

time in order for your venture to make good progress.

Innovate and create

Your idea is your business, so its entirely up to you what your business is about.

Its success will also depend on how you develop your concept, allowing you to express

yourself and find ways of making it attractive enough to generate profit.

Variety

Being an entrepreneur means you have to wear many different hats.

These include: accountant, marketer, manager, writer, pitcher, designer and researcher.

Experiencing this sort of variation in your job every day can be very fulfilling as long as

youre prepared to learn all the skills and knowledge required to perform these roles.

Page 7 of 35
No more commuting

if your journey to work each day takes 45 minutes or more, thats an hour and a half each

day that you could be spending doing something you enjoy!

Although you may have to move your business to a small office once it has grown

sufficiently, starting out by working at home is a great way to save money on costs.

If youre someone who has to endure a long commute to work and back each day, this

may seem like a good enough reason in itself to become self-employed.

Money

Dont make the mistake of thinking only big companies can make big bucks. There are

many entrepreneurs who have made millions on their own through hard work and lots of

determination.

Second career

If you still enjoy your day job but want to set up a business, or just want the security of a

regular income until your venture becomes established, you can always juggle the two.

Set yourself strict hours in your spare time when you will work on your business it may

seem tricky at first, but works once you get yourself into the habit.

After all, your health is more important than anything and you dont want to burn

yourself out!

Dreams really can come true

Page 8 of 35
Despite what the papers say, the government isnt completely useless at supporting the

countrys budding entrepreneurs.

Theyve made it easier in recent years to set up a company and secure funding by cutting

red tape and other bureaucracy.

Organizations such as the Princes Trust and Angels Den also offer funds for business

start-ups.

With the right attitude, your business venture can go a long way and make substantial

profits.

Check out our Startup Success Stories to be inspired by those who have already achieved

their dreams.

4.0 Different types and sources of start-up ideas

Different types start-up ideas

Type A ideas are startup ideas concerned with providing customers with a product

that does not exist in their market but already exists somewhere else.
Type B ideas are startup ideas that involve a new or relatively new technology in

providing customers with a new product.

Page 9 of 35
 Type C ideas are startup ideas that perform old functions in new and improved

ways.

Starting a Business - Sources of business ideas

Where does an entrepreneur come up with the idea for his/her business? In practice there

are many ways in which the business opportunity and idea is first spotted. As we shall

see, sometimes luck plays a big part; at other times there is a role for approaches which

encourage deliberate creativity.

Here are some of the main sources of business ideas for start-ups:

Business experience

Many ideas for successful businesses come from people who have experience of working

in a particular market or industry. For the start-up, there are several advantages of

applying this experience to a new business:

Better and more detailed understanding of what customers want

Knowledge of competitors, pricing, suppliers etc

Less need for start-up market research

Entrepreneur is able to make more realistic assumptions in the business plan about

sales, costs etc

Industry contacts, who might then become the first customers of the start-up!

Page 10 of 35
All of the above help the business planning process and you could argue that they reduce

the risks of a start-up.

On the other hand, you might argue that familiarity breeds contempt. In other words,

detailed experience of an industry means that the budding entrepreneur doesnt have a

fresh perspective. Someone who is new to a market may be able to exploit approaches

that have worked in other industries to make an impact with the start-up.

Personal experience

Many ideas come to entrepreneurs from their day-to-day dealings in life, or from their

hobbies and interests. For some of us, frustrating or bad experiences are a source of

irritation. For the entrepreneur they might suggest a business opportunity.

It is often said that one of the best ways to spot a business opportunity is to look for

examples of poor customer service (complaints, product returns, persistent queues etc).

Such examples suggest that there is an opportunity to do something better, quicker or

cheaper than the existing products.

Hobbies and interests are also a rich source of business ideas, although you have to be

careful to avoid assuming that, just because you have a passion for collecting rare tin

openers, there is a ready market from people with similar interests! Many people have

tried to turn their hobby into a business and found that generates only a small

contribution to household income.

Observation

Page 11 of 35
Simply observing what goes on around you can be a good way of spotting an idea. Often

an idea will be launched in another country and has not yet been tried in other, similar

economies. When Stephen Waring was in the USA attending a wedding, by luck he sat

next to someone who ran a household service business (treating lawns). After some brief

market research, Stephen found out that there was no similar business in the UK, so he

launched one. It has since become a hugely successful franchise business Green

Thumb.

5.0 External and Internal analyses that might shape

new venture opportunities

Page 12 of 35
The Internal Analysis of strengths and weaknesses focuses on internal factors that give an

organization certain advantages and disadvantages in meeting the needs of its target

market.

Strengths refer to what your company does well.

Core competencies that give the firm an advantage in meeting the needs of its

target markets.

Any analysis of company strengths should be market oriented/customer focused

because strengths are only meaningful when they assist the firm in meeting

customer needs.

Strengths give the company enhanced competitiveness

Weaknesses refer to any limitations a company faces in developing or implementing a

strategy.

Weaknesses are something a company lacks or does poorly in comparison to

others, or a condition that puts it at a disadvantage

Weaknesses should also be examined from a customer perspective because

customers often perceive weaknesses that a company cannot see.

The External Analysis examines opportunities and threats that exist in the environment.

Both opportunities and threats exist independently of the firm. The way to differentiate

between a strength or weakness from an opportunity or threat is to ask: Would this issue

Page 13 of 35
 exist if the company did not exist? If the answer is yes, it should be considered external to

the firm.

Opportunities are situations that exist but must be acted on if the business is to benefit

from them.

Threats refer to external conditions or barriers that may prevent the firms from reaching

its objectives.

The manager's starting point will be to analyses the industry that the business operates in.

There are various factors within the industry that may pose as opportunities or threats to

your business. Porter's Five Forces Model identifies five industry factors that may present

opportunities and threats for your business. They are:

The risk of entry by potential competitors: new competitors in the industry may

lead to your business losing some of its market share, which will result in a loss of

profit. Therefore, new entrants pose a threat to your business. On the other hand, if there

is a minimal risk of new entrants into the market, this may present your business with

new opportunities.

The intensity of rivalry among established companies within an industry:

Competing with other businesses to gain a market share may involve tactics that require

your business to either increase costs or lower prices, which will affect profitability.

This poses a threat to your business. However, minimal competition may also provide

your business with an opportunity to increase prices or reduce costs.

Page 14 of 35
 The bargaining power of buyers: If your buyers have the power to bargain

prices or demand higher quality products and services, this will pose a threat to your

business and it will result in a decrease in profits. However, if buyers have little power,

this may present some opportunities for your business.

The bargaining power of suppliers: Similarly to the bargaining power of buyers,

if suppliers have the power to demand higher input prices; this poses a threat to your

business' profits. Conversely, if suppliers have little power, your business may have the

opportunity to demand lower prices and thus increase profits.

The closeness of substitutes to a product: if there are various products available

in the market that can substitute your product, by satisfying the customers' needs and

wants, then this is a threat to your business, as your sales may potentially decrease, and

so will profits.

6.0 Broad-based strategy options and focus strategies

Page 15 of 35
Cost-based strategies relate to the business decision to base the price of a product on the

costs of production rather than external factors such as competition or the economic

environment. This is traditional approach to pricing which may be appropriate in stable

markets where competition is moderate.

Ultimately the price of a product must exceed its cost or the firm will make a loss.

There are three overall types of cost-saving opportunities. The first form deals with

obtaining better prices due to high bargaining power. In general, large retailers with

centralized purchasing organizations or that concentrate their overall purchases in a small

number of SKUs are best able to secure the lowest prices. Retailers with strong private

label brands are also able to use these as means of negotiating better prices for

manufacturer-branded merchandise.

A second form of cost-based strategy is through a retailers reducing bad costs. Some bad

costs are incurred by chains that overly centralize strategies across the United States, or

by retailers that do not change their strategies as a result of advances in technology or

changes in consumer behavior. In other cases, low-cost retailers incur bad costs through

adding services that may not be desired by its cost-conscious customers.

Differentiation based on atmosphere:

Remove impediments to a pleasant experiencelong lines, rude salespeople,

stockouts, and difficulty in locating sale items.

Page 16 of 35
 Include exciting departments in the store such as coffee bars, fresh pasta bars,

salad bars, sound rooms, and so on.

Show how fresh food is made. Let customers observe bread being baked, fresh

pasta being prepared, beef being cut and aged, coffee being roasted, and so forth.

This also validates the stores cleanliness.

Plan a series of events throughout the year, such as wine and cheese tastings,

demonstrations by local chefs, book signings, trunk shows, and so on, to generate

continuous excitement.

Generate a fun atmosphere for all age groups through product samplings, a petting

zoo, and events based on local holidays (for example, Celtic dancers on St.

Patricks Day, hayrides for children, and fresh-dipped chocolate on St. Valentines

Day).

Encourage staff to provide food samples for young children (based on a parents

approval).

Plan and implement a well-lit, well-fixtured store interior. Consider using

appropriate background music.

Use sampling stations to show off fresh vegetables, special cuts of meat, and

private label products. Also provide demonstrations of new appliances, digital

cameras, netbooks, and so on.

Display fruits and vegetables in an artistic manner showing their diverse colors.

Page 17 of 35
Differentiation based on merchandise:

Develop private label products that are distinctive based on recipe, contents,

features, durability, or health benefits (low cholesterol, fat, or salt).

Sell distinctive lines of manufacturer brands.

Edit merchandise offerings of vendors to items with high quality, ease of use, and

distinctive features.

Communicate the advantages of your private label or exclusive merchandise

products by telling a story about the products on the products label, on store

signage, or on the Web. Tell customers what is so special about these products in

language they can identify with and understand.

Develop attractive packaging for private labels.

Provide demonstrations showing private labels, as well as national brands.

Provide free samples of private label and national brands for cooking at home.

Differentiation based on customer service:

Empower employees to right a wrong.

Have store personnel help customers load heavy packages into their vehicles. A

no-tipping policy should be enforced.

Page 18 of 35
 Allow customers to order merchandise using the Web, or to verify that a local

store has the desired quantity of goods in stock.

Train employees to take customers to the exact aisle location, not shelf aisle,

when they are asked for the location of an item.

Hire employees that have a passion for being with people, love to help others, and

enjoy good food.

Hire employees with a passion for the products you are selling (foodies for a

supermarket, tennis buffs for a sporting goods store, and techies for a

computer/electronics store).

Educate employees through special classes, field trips to vendors, or free samples

to take home.

Employ a staff dietician that can help customers with special food needs.

Differentiation based on trust:

Pretest and pretaste all products offered for sale. Refuse to sell poor-quality

merchandise regardless of their sales potential or ability to generate store traffic.

Offer rain checks if sale merchandise is out of stock.

Offer an unconditional no questions asked, no ifs, ands, or buts money-back

guarantee.

Page 19 of 35
 Specify a written policy relating to no preservatives, no artificial ingredients for

foods, and no wood furniture from nonrenewable sources.

Place nutritional information on all private label food products.

Co-brand a retailers private label with an established national brand.

Employ well-informed sales personnel trained to offer the most suitable goods for

customers based on customer needs. Sales personnel should be compensated

primarily on salary (as opposed to commission), so they will honestly assess a

customers needs and not oversell.

Clearly communicate information on product recalls to affected customers.

Compensate employees based on salary, not commissions. In this way, the

incentive to oversell no longer exists.

Refuse to sell merchandise that would be objectionable to the retailers target

audience.

Develop safety standards that are higher than Food and Drug Administration and

Department of Agriculture requirements.

Page 20 of 35
7.0 Conclusion
A business plan is not just a lengthy document that helps you obtain financing. It's truly a

thorough examination of whether your business idea is viable. Preparing your business

plan in the early stages of developing your business can save you a great deal of time,

money and heartache by showing you where the weaknesses in your idea lie and giving

you a chance to correct them before you make any serious mistakes.

For example, in the process of putting together your business plan, you might discover

that you haven't really thought enough about your marketing budget or you haven't done

enough research on government regulations that will affect your business. In putting

together your plan, you will be forced to examine your business from the viewpoint of the

skeptical potential investor and the skeptical potential consumer, not just from the

perspective of the enthusiastic entrepreneur.

Once you've completed your initial plan and, hopefully, obtained the investment or loan

you were seeking, keep in mind that your business plan should be a living document.

Don't just store your business plan on a shelf and never look at it again, thinking that it

has served its purpose. You will want to revisit your plan from time to time, dropping

Page 21 of 35
some components and adding others as you learn what works for your business and what

doesn't. As your business evolves, you'll find that older versions of your plan provide a

helpful reminder of how far you've come. As a bonus, continually updating your plan will

put you ahead of the game if you later need to secure additional financing.

Step 1

Write with an optimistic tone. If you sound like you dont believe in your company, the

reader wont either. Say, By following this plan, ABC Company will meet its financial

goals, rather than, If we are fortunate, ABC Company can gain success.

Step 2

Summarize the opportunity. A detailed business plan provides a great deal of information

like start-up capital, projections and target demographics. Summarize and remind the

reader of that information.

Step 3

Outline where you expect to be in the next three to five years. Show the reader that he

will benefit from investing in your company. For example, Following projections, ABC

company will grow 50 percent over the first five years.

Step 4

Emphasize what sets you above your competitors. To convince a reader to invest, you

want a competitive edge. The combination of years of industry experience combined

with cutting-edge technology has ABC company poised to claim the top spot in the

market.

Step 5

Page 22 of 35
Tell the reader what you expect from him. The plan itself may interest him, but his idea of

a contribution may differ from what you need. If you are looking for a $20,000

investment, specify that number.

Step 6

Finish with a call to action. If youve done your job, the reader is interested and knows

what is expected of him. A final push may well seal the deal. For example, Take this

exciting opportunity to get in on the ground floor of a company with unlimited growth

potential.

Page 23 of 35
8.0 References

1. text book
2. http://www.google.com/
3. http://en.wikiversity.org/wiki/
4. http://startups.co.uk

Page 24 of 35
9.0 Coursework

1.The creative process

The creative process has four commonly agreed phases, shown in Figure 1.2. There is

wide agreement on their general nature and the relationship between them, although

they are referred to by a variety of names (de Bono, 1995).

Phase 1: Generating knowledge and awareness

A prerequisite to all creative processes is the generation of awareness of different ideas

and ways of doing things through reading and travelling widely, talking with different

people with different views about the world. You may, for example, see demands being

met in one country that are not met in others. You may read about products made in one

country that are not yet available in another. This is, of course, to be placed in the

context of the issue being addressed. So, in these examples of demand and supply, the

opportunities you have spotted in other countries arc very relevant to your desire to set

up your own business. It is not just about being aware of different approaches or

perspectives on the problem, but also about getting the brain to accept that there are

different ways of doing things developing both an open and an enquiring mind Many

people almost have to give themselves permission to be creative to think the

unthinkable. Carrying a notebook and recording ideas and information can be useful. So

too can developing a small library. Look how far Lego, LG and Hallmark went in order

Page 25 of 35
to expose their staff to new ideas. Some sources of commercial new ideas are shown in

Figure

FIGURE Sources of awareness and ideas Phase 2: Incubation process

People need time to mull over the tremendous amounts of information they generate in

Phase i. This incubation period happens when people are engaged in other activities (the

best are those instinctive activities that do not require left brain dominance) and they can

let their subconscious mind work on the problem. Interestingly, sleep happens when the

left brain gets tired or bored and during this time the right brain has dominance.

Incubation therefore often needs sleep. The old adage, 'sleep on the problem, has its

origins in an understanding of how the brain works. It is little wonder that so many

people have creative ideas when they are asleep the problem is trying to remember

them. Creativity, therefore, can take time and needs 'sleeping on.'

Phase 3: Generating ideas

Page 26 of 35
Ideas can come up unexpectedly during the incubation period, sometimes while you are

asleep. However, often they need encouragement and there are a number of techniques

that can help to encourage idea generation. Some of the more widely used ones arc

explained in the next section.

Phase 4: Evaluation and implementation

The next stage is to select which ideas are the most promising. This is the convergent

stage of the process involving discussion and analysis, possibly voting. Some ideas

generated in Phase 3 might be easy to discard because they are unrealistic but others

might need to be worked up or modified before they can be properly evaluated.

Sometimes a return to Phase 3 is required to do this. We shall look at how you might

evaluate your business ideas in the next chapter.

Roger von Oech (1986) has a slightly different view of the creative process,

focusing on the changing role of the individual as it takes its course. He outlines four

sequential roles:

The explorer searching for new insights and perspectives by sifting

through information, being curious, observing other fields, generating ideas,

broadening perspectives, following unexpected leads, using difficulties and

obstacles and constantly writing things down.

The artist turning information and resources into new ideas by imagining,

adapting, reversing, linking, parodying, evaluating and discarding.

Page 27 of 35
 The judge evaluating and assessing the merits of a concept and incorporating

ideas through objectivity and looking at assumptions, probabilities and

timing.

The warrior achieving organizational acceptance and implementation of

ideas by being bold, courageous and persistent, developing plans,

commanding resources, motivating stakeholders to commit themselves to the

project.

In a start-up the entrepreneur may have to fulfil all four of these roles a

considerable achievement, not least because they require different types of left and

right brain activity.

Some organisations have created environments designed to facilitate these

stages of the creative process. The Royal Mail Group has its own Creativity

Laboratory: This is made up of a number of open areas facilitating groups

forming, breaking up and coming together again all with very informal seating

arrangements. Standing and walking are encouraged. There is background music as

well as toys, drinks and other distractions for the left brain. All the walls are 'white

walls' which can be written on with felt tip pens when ideas are in free flow. Pens are

everywhere. There are computer systems that allow ideas to be posted and voted on

anonymously. And records are kept of the whole process even the white walls are

photographed so agreed actions and outcomes can be followed up back in the

workplace.

Page 28 of 35
2. Sustainability and corporate social responsibility

Before moving on to consider this process in more detail it is worth introducing the

concept of sustainability for both the business and society as a whole. It is not just

social entrepreneurs who have a role within society and, as with social enterprises,

money can be made from being socially responsible wherever it is reinvested. It is

now widely accepted that many business practices have negative social and

environmental side effects. Growing pressures are leading firms to give careful

consideration to sustainable development and how it might contribute to the

sustainability of competitive advantage and growth of the organisation. These pressures

come from:

Environmentalists who see companies rapidly using up the valuable but limited

resources of the planet and at the same time contributing to global warming,

which may ultimately cause the destruction of the planet Green issues and the

corporate 'carbon footprint' are rapidly becoming the most important issues

facing business today.

Page 29 of 35
 Social reformers who see companies behaving in ways that they object to, for

example by 'exploiting' cheap labour in developing countries, or providing poor

working conditions. Trade unions and consumer groups have both focused on

social issues in the past, often with the result that legislation limiting the activity

of companies has been enacted (e.g. the minimum wage in Europe).

Social activists who see companies as having a broader social role in the

community beyond the boundaries of the working environment Corporate

citizenship programmes, in which employees undertake charitable work in the

community, for example, have become a trendy outlet for many companies,

whilst others like Body Shop and Timberland have practised this for years.

Ethical activists who see companies (such as Enron) behaving in ways which

are ethically unacceptable, usually by trying to mislead stakeholders. There is, of

course, an overlap here with the agendas of the other groups. Nevertheless,

business ethics has risen up the agenda of society as a whole and shareholders, in

particular, and companies are responding.

Often these issues are bundled together under the broad umbrella of corporate social

responsibility (CSR). More and more companies are engaging seriously in CSR, and

over 500 in the UI< issue annual CSR reports on their performance. Much of the CSR

literature is highly moralistic in nature, reflecting the idealism of scholars who question

the profit maximisation objective of companies (Wood, 2000). However, Burke and

Logsdon (1996) argue that there are sound business reasons for following a strong CSR

policy and organisations can expect six strategic outcomes:

Page 30 of 35
 Enhanced customer loyalty. Certainly a strong CSR profile can reinforce and

enhance brand image (see the Abel & Cole Case insight). Customers are

increasingly drawn to brands with a strong CSR profile and CSR has become an

element in the continuous process of trying to differentiate one company from

another. In 20 developed countries a survey of 20 000 people showed CSR-

related factors collectivelyaccounted for 49 per cent of a company's image,

compared to 35 per cent for branD image and just 10 per cent for financial

management (Environics International, 2001).

Increased future purchases: Whilst any product must first satisfy the customer's key

buying criteria quality, price etc. a strong CSR brand can increase sales

and customer loyalty by helping to differentiate it. On the other hand a bad CSR

image can damage sales quite severely. The Environics survey (op. cit.) showed

42 per cent of consumers in North America would punish companies for being

socially irresponsible by not buying their product a factor BP was very

concerned about after the Gulf of Mexico oil spill in 2010. This fell to 25 per

cent in Europe but collapsed to 8 per cent in Asia where CSR issues are seen as

less important.

Reduced operating costs: Many environmental initiatives can reduce costs (e.g.

reducing waste and recycling, having better control of building temperatures or

reducing use of agrochemicals). Many social initiatives can increase employee

motivation and cut absenteeism and staff turnover, and an increasing number of

graduates take CSR issues into consideration when making employment

decisions.

Page 31 of 35
 Improved new product development: Focus on CSR issues can lead to new product

opportunities. For example, car manufacturers are striving to find alternatives to

fossil fuels, whilst developing conventional engines that are more and more

economical. Innovation linked to sustainability often has major systems-level

implications, demanding a holistic and integrated approach to innovation

management. The commitment of the retailer M&S to be completely carbon-

neutral by 2012 has required them to completely re-engineer many of their

operations, leading to opportunities for specialist suppliers. Berkhout and Green

(2003) argue for a systems approach to innovation, linking it with sustainable

research, policy and management, and concluding that 'greater awareness and

interaction between research and management of innovation, environmental

management, corporate social responsibility and innovation and environment

will prove fruitful*.

Access to new markets: A strong CSR brand can create its own market niche for an

organisation. For example, the Co-operative Bank in the UI< has a long history

of CSR. It has set itself up as an ethical and ecological investor with an

investment policy that is the most frequently cited reason that customers choose

the bank. It also has been at the forefront of social auditing practices and has

produced an independently audited 'Social Report' since 1997 that measures the

impact and identifies improvements the company could make in social

responsibility areas.

Productivity gains: Actions to improve working conditions, lessen environmental

impact or increase employee involvement in decision-making can improve

Page 32 of 35
 productivity. For example, actions to improve work conditions in the supply

chain have been seen to lead to decreases in defect rates in merchandise.

Not surprisingly, therefore, strong CSR performance seems to be linked to financial

performance. A 2002 study showed that the overall financial performance of the 2001

Business Ethics Best Citizen companies in the USA was significantly better than that of

the remaining companies in the S&P 500 Index (Verschoor, 2002). There is growing

awareness that incorporating CSR into mainstream corporate strategy translates into

bottom-line performance. In the short term it, at least, avoids negative consumer or

activist publicity, in the medium term it delivers better performance for investors and

thecommunity, and in the long term, by encouraging consideration of abiding social and

environmental interests, it can give management a broader, long-term perspective on the

sustainability of the company's performance.

Certainly companies like Abet A Cole have used CSR as a major plank in their

branding. But CSR predates Abel & Cole by over a century. In the UK Cadbury, Wilkin

& Sons (maker of Tiptree Jams) and the Co-op are all early examples of businesses with

a CSR dimension. Today many large organisations, like the UK retailers Marks &

Spencer (MAS) and John Lewis, and the US company IBM and outdoorware

manufacturer Timberland, have extensive CSR programmes ranging from community

involvement (staff working on community projects in company time) through to ethical

sourcing (from humans and animals) and into environmental issues (such as M&S'

objective to become completely carbon neutral). M&S' 100-point "Plan A' is generally

seen as a model for today's socially responsible large companies.

Page 33 of 35
 There is also growing investor pressure to implement CSR. The Environics survey

(op. cit) showed that over a quarter of US share owners bought or sold shares because of

a company's social performance and a similar pattern emerged in Britain, Canada, Italy,

Canada and France (Environics International, op. cit). There are now CSR stock market

indices, like the Dow Jones Sustainability Index and the FTSE4Good, and, increasingly,

mainstream investors see CSR as a strategic business issue and raise it in annual

meetings. Activist groups also buy shares in targeted companies to give them access to

these annual meetings so that they can raise CSR issues.

CSR can be integrated into the strategic planning process outlined in Figure 3.2:

Strategic analysis: Firms need to be aware of legislation and should compare

themselves to competitors (Epstein and Roy, 2001) and find out about the

expectations of external stakeholders (Smith, 2003). Similarly companies should

find out the expectations of their internal stakeholders (Smith, op cit) with a view

to assessing the adequacy of their organizational capacity their resources and

processes (deColle and Gonella, 2002; Epstein and Roy, op cit). The firm should

then be able to assess the fit between the CSR commitments it might aspire to and

its central business objectives (Burke and Logsdon, op. cit.; Smith, op. cit.),

which may or may not result in changing the vision and mission for the business.

Strategy formulation: This is usually demonstrated as a list of commitments.

According to Smith (op. cit.), this should reflect "an understanding of whether

(and why) greater attention to CSR is warranted by that particular organization.'

Strategy implementation: This requires concrete actions to be undertaken but also it

is important to publicise this to internal and external stakeholders to demonstrate

Page 34 of 35
 commitment and attainment (Burke and Logsdon, op. cit.). These may have to be

audited or evaluated (de Colle and Gonella, op. cit).

Sustainability and CSR can therefore be integrated into the strategic planning process.

Indeed they should be at the heart of any growth strategy. CSR encourages a long-term

view and reflects the concerns of the society in which the company is embedded.

However, it also makes good business sense, providing market and brand opportunities

that translate into bottom-line profits. CSR is set to become more important in the future

and is likely to be an essential element of strategy for all companies of every size.

Page 35 of 35