Master of Business Administration – MBA Semester 4-SMU

MB0036 – Strategic Management & Business Policy

Assignment Set- 1 & Set- 2
3 Credits (60 Marks)

Submitted by : L.V.R.SASTRY
Reg No : 510910051
Master of Business Administration – MBA Semester 4
MB0036 – Strategic Management & Business Policy
Assignment Set- 1
Note: Each question carries 10 Marks. Answer all the questions.
1. Explain the different circumstances under which a suitable growth strategy should be
selected by any company to improve its performance (i.e., intensive, integrative or
diversification growth). You may select an example of your choice to substantiate your
views (10 marks).
Sol:
Strategies to Improve Sales
There are three alternatives to improve the sales performance of a business unit, to fill the gap
between actual sales and targeted sales:
a) Intensive growth
b) Integrative growth
c) Diversification growth
a) Intensive Growth:
It refers to the process of identifying opportunities to achieve further growth within the
company’s current businesses. To achieve intensive growth, the management should first
evaluate the available opportunities to improve the performance of its existing current
businesses.
It may find three options:
· To penetrate into existing markets
· To develop new markets
· To develop new products
At times, it may be possible to gain more market share with the current products in their current
markets through a market penetration strategy. For instance, SONY introduced TV sets with
Trinitron picture tubes into the market in 1996 priced at a premium of Rs.10,000 and above over
the market through a niche market capture strategy. They gradually lowered the prices to market
levels. However, it also simultaneously launched higher-end products (high-technology
products) to maintain its global image as a technology leader. By lowering the prices of TVs
with Trinitron picture tubes, the company could successfully penetrate into the markets to add
new customers to its customer base.
Market Development Strategy is to explore the possibility to find or develop new markets for its
current products (from the northern region to the eastern region etc.). Most multinational
companies have been entering Indian markets with this strategy, to develop markets globally.
However, care should be taken to ensure that these new markets are not low density or saturated
markets, which could lead to price pressures.
Product Development Strategy involves consideration of new products of potential interest to its
current markets (e.g. Gramaphone Records to Musical Productions to CDs)– as part of a
Diversification strategy.

Study the following example to understand what Product Development Strategy is.
MICROSOFT’s New Strategy
It is called PC-plus. It has three elements:
a) Providing computer power to the most commonly used devices such as cell phone, personal
computer, toaster oven, dishwasher, refrigerator, washing machines and so on.
b) Developing software to allow these devices to communicate.
c) Investing heavily to help build wireless and high-speed internet access throughout the world
to link it all together.
Microsoft envisions a home where everyday appliances and electronics are smart. According to
Bill Gates, ‘In the near future, PC-based networks will help us control many of our domestic
matters with devices that cost no more than $ 100 each ‘.
It is also said at Microsoft that VCRs can be programmed via e-mail, laundry washers can be
designed to send an instant message to the home computer when the load is done and
refrigerators can be made to send an e-mail when there’s no more milk. Microsoft plans to give
these appliances ‘brains‘ and provide them the means to talk to each other through their
Windows CE Operating System.
b) Integrative Growth:
It refers to the process of identifying opportunities to develop or acquire businesses that are
related to the company’s current businesses. More often, the business processes have to be
integrated for linear growth in the profits. The corporate plan may be designed to undertake
backward, forward or horizontal integration within the industry.
If a company operating in music systems takes over the manufacturing business of its plastic
material supplier, it would be able to gain more control over the market or generate more profit.
(Backward Integration)
Alternatively, if this company acquires some of its most profitably operating intermediaries such
as wholesalers or retailers, it is forward integration. If the company legally takes over or
acquires the business of any of its leading competitors, it is called horizontal integration
(however, if this competitor is weak, it might be counter-productive due to dilution of brand
image).
c) Diversification Growth:
It refers to the process of identifying opportunities to develop or acquire businesses that are not
related to the company’s current businesses. This makes sense when such opportunities outside
the present businesses are identified with attractive returns and that industry has business
strengths to be successful. In most cases, this is planned with new products that have
technological or marketing synergies with existing businesses to cater to a different group of
customers (Concentric Diversification).
A printing press might shift over to offset printing with computerised content generation to
appeal to higher-end customers and also add new application areas ( Horizontal Diversification )
– or even sell stationery.
Alternatively, the company might choose new businesses that have nothing to do with the current
technology, products or markets (Conglomerate Diversification).
The classic examples for this would be engineering and textile firms setting up software
development centres or Call Centres with new service clients.
Situation Analysis
Sales Improvement Strategies:
a) A supplier of computer stationery invests in a computer stationery manufacturing unit.
b) A vendor supplying engine boxes to Maruti decides to supply the same with modifications to
Hyundai.
c) A company dealing in computer floppies plans to set up a Software Technology Park.
2. What are the components of a good Business Plan and briefly explain the importance of
each.(10 marks).
Sol.
The format of a Business Plan is something that has been developed and refined over the years
and is something that should not be changed. Like a good recipe, a business plan needs to
include certain ingredients to make it work.
When you create a business plan, don't attempt to recreate its format. Those reviewing this type
of document have expectations you must meet. If they do not see those crucial decision-making
components, they'll see no reason to proceed with their review of your business plan, no matter
how great your business idea.
Executive Summary Section
Every business plan must begin with an Executive Summary section. A well-written Executive
Summary is critical to the success of the rest of the document. Here is where you need to capture
the attention of your audience so that they will be compelled to read on. Remember, it's a
summary, so each and every word must be carefully selected and presented.
Use the Executive Summary section of your business plan to accurately describe the nature of
your business venture including the need that you plan to fill. Show the reasons why people need

your product or service. Show this by including a brief analysis of the characteristics of your
potential market.
Describe the organization of your business including your management team. Also, briefly
describe your sales and marketing plan or approach. Finally include the numbers that those
reviewing your business plan want to see - the amount of capital you seek, the carefully
calculated sales projections and your plan to repay the loan.
If you've captured your audience so far they'll read on. Otherwise, they'll close the document and
add your business plan to the heap of other rejected ideas.
Devote the balance of your business plan to providing details of the items outlined in the
Executive Summary.
The Business Section
Be sure to include the legal name, physical address and detailed description of the nature of your
business. It's important to keep the description easy to read using common terminology. Never
assume that those reading your business plan have the same level of technical knowledge that
you do. Describe how you plan to better serve your market than your competition is currently
doing.
Market Analysis Section
An analysis of the market shows that you have done your homework. This section is basically a
summary of your Marketing Plan. It needs to show the demand for your product or service, the
proposed market, trends within the industry, a description of your pricing plan and packaging
and a description of your company policies.
Financing Section
The Financing section must show that you are as committed to your business venture as you
expect those reading your business plan to be. Show the amount of personal funds you are
contributing and their source. Also include the amount of capital you need and your plan to repay
this debt. Include all pertinent financial worksheets in this section: annual income projections, a
break-even worksheet, projected cash flow statements and a balance sheet.
Management Section
Outline your organizational structure and management team here. Include the legal structure of
your business whether it is a partnership, corporation or limited liability corporation.
Include resumes and biographies of key players on your management team. Show staffing
projection data for the next few years.
By now you're probably thinking that you don't need Business Plan just yet. Well you do, and
there is business plan building software that can help you through this immense project. These
software packages are easy to use and affordable. Use one today and produce a professional-
quality Business Plan - including all critical components - tomorrow!
3. You wish to start a new venture to manufacture auto components. Explain different
stages in the process of starting this new business. (10 marks).
Sol.
Every business starts out as an idea. This idea usually involves the invention of a new product, or
revolves around a better way of making and marketing an existing one. While many would argue
that the idea stage is not a stage at all, it is actually a turning point, as business adviser Mike
Pendrith points out. After this, you as a business builder must refine this idea into a money-
making reality. Here in this case supposing we are to start a new venture of manufacturing auto
components and also to market them. We will see here in the following paragraphs different
stages of achieving the same goal.

1. Idea Researching
In this stage, you are researching your idea. The object of your research is to find out who
is marketing the same product or service in your area, and how successful the marketer
has been. You can accomplish this by a Google search on the Internet, launching a test-
marketing campaign, or conducting surveys. Also, you are attempting to find what the
level of interest is in the products (or services) you wish to market.
Here as the main goal is to start a company that manufactures the auto components, we
are to make a research on all the auto companies which are procuring the spares from the
outside vendors. And also the competitors who are all marketing that, their existence and
also how successful they are.
As part of the initial research process, it is important to consider the legal requirements of
selling your product or service. According to the Biz Ed website, examine the legal
ramifications of your business. Know the tax laws governing your business. If insurance
is a requirement, prepare to budget for it. Also, be aware of any safety laws governing
you as an employer. Hence we are also to make a research on the feasible area where we
can start our organization and licenses that we need to take keeping in mind the
environmental factors as well.
2. Business Plan Formulation
You must write a business plan. As Pendrith points out, this is crucial if you want
funding, such as a small business loan or grant, or if you wish to lease a building. At this
stage, Pendrith advises, you need to consult with an attorney or business adviser for
assistance.
In the business plan you typically include following heads:

i) Executive Summary
ii) Company and Product Description
iii) Market Description
iv) Equipment and Materials
v) Operations
vi) Management and Ownership
vii) Financial Information and Start-Up Timeline
viii) Risks and Their Mitigation
3. Financial Planning
Financial planning involves thinking about the financial costs of starting and maintaining
your business. According to the Biz Ed website, you should consider such issues as the
costs of running the business; the prices you wish to charge your customers; cash flow
control; and how you wish to set up financial reserves in case of an emergency or an
event causing significant loss to the business. This includes the planning of whether to
take any loans or make personal investments in the company.
4. Advertising Campaign
Decide how you will market your product. Consider your budget and your target
audience. Make up business cards with your logo on it, your name and the name of your
business. Make sure that they are of the most professional quality. Utilizing print, the
newspaper, the Internet, radio or TV is also wise, considering, of course, the size of your
advertising budget.
Here in this case more than TV, a better advertising media will be road side sign boards
placed close to the auto companies for getting the deals to manufacture their spares. As
TV is useful only to reach the common man and he is not our target customer. Hence
sign boards is the feasible solution and also pamphlets circulated across the pioneers.
This apart personal marketing is much more suggested.
5. Preparing for Launch
Advertise for employees. This also requires adequate planning. Think about what you
look for in an employee. Be specific about the requisite skills and experience you are
seeking. Then begin requesting resumes and setting up interviews, making hiring
decisions based on the standards you have set.
In this case we will be looking for a few candidates in managerial position who must be
good in managing things apart from minimal technical knowledge.
Lower level people at the shopfloor people. They need to have real time experience in
the shop floor activities.
The employees apart, one needs to plan on the plant and machinery as well.
Thus these are all the stages that I would consider performing if incase I plan to start a
manufacturing unit producing automobile components.
4. Explain the process of due Diligence and why it is necessary.(10 marks).
Sol.
Due diligence
Of course, your commercial partner will need some reassurance about the quality of the offer you
are making to them. If you are involved in licensing technology or seeking commercial support
for your research you are likely to hear of ‘due diligence.’ When a future partner is considering
whether or not to license technology, to buy a share of patent rights, or to support your research,
they will need to satisfy themselves that it is a viable proposition. The process of assessing the
viability, risk, potential liabilities and commercial prospects of a project is known as ‘due
diligence.’ Indeed, if a potential partner seems not to be interested in this kind of issues, it may
actually raise questions about their commitment to the project or the credibility of their business
plan, particularly if the relationship assumes some degree of risk and investment on their part.
Generally, due diligence will involve assessing the overall commercial operations, cash flow,
assets and liabilities of a business that is being purchased or otherwise financially supported.
You would think twice about purchasing a business if you found that it was burdened with debts,
or was about to be involved in difficult litigation, or if there were doubts about whether it really
owned its assets. The same applies to a potential investment involving intellectual property. For
instance, a potential commercial partner would not want to invest in patented technology only to
find out that patent renewal fees have not been paid and the patent has lapsed, or to find out that
the patent was being opposed by another company, or to find that there is prior art available that
calls into question its validity. It may transpire that a student, a contractor or a visiting researcher
could actually be legally entitled to some or all of the patent rights. Even a serious level of
uncertainty or doubt could be enough to deter a potential partner, especially if they have run into
this kind of difficulty before.
Due diligence may also involve searching for information about the full range of IP rights that
might impact on the relevant technology – for instance, to check whether you have later filed
patent applications on improvements to the original patented technology, that may limit the value
of their investment in the original technology. Other intellectual property rights – such as related
trade mark or design registrations, or key trade secrets or copyright material (such as manuals or
software) – may also need to be identified or located, as these may also affect the commercial
partner’s interests in the technology. For example, they may be unwilling to take out a licence for
your patent without getting access to the software you have developed for a related process. They
may want the right to use your trade mark in association with the patented technology.
So in a due diligence process, your commercial partner may undertake a range of checks and
need various forms of information. These may include:
· Checks on external records, such as patent registers and patent databases, including foreign
patents;
· Searches of patent databases for conflicting technology;
· Independent advice from patent attorneys on issues such as patent ownership, patent validity
and scope of patent claims;
· Checks on employment contracts, confidentiality arrangements, and contracts with other parties
that may interfere with the exercise of IP rights;
· Details of the patent prosecution such as examiners’ reports and other opinions;
· Details of any legal challenges to the patent, and the way the proceedings were resolved;
· Checks on laboratory notebooks in the event that the validity of US patents is of concern to the
commercial partner (this also provides reassurance as to claims of ownership of the patent);
· Surveys of the activity of competitors and owners of competing technology, and possibilities of
conflict; and
· Analysis of freedom to operate issues.
In preparing to licence your technology, you should consider in advance these kind of due
diligence issues. If you can anticipate and provide comprehensive answers to these questions,
you will be able more effectively to reassure your commercial partner, and you will be in a
stronger negotiating position in negotiating licence terms. It should also speed up the licensing
negotiations, and ultimately the commercialization of your intellectual property.
5. Is Corporate Social Responsibility necessary and how does it benefit a company and its
shareholders? (10 marks).
Sol.
Corporate social responsibility (CSR), also known as corporate responsibility, corporate
citizenship, responsible business, sustainable responsible business (SRB), or corporate
social performance,[1] is a form of corporate self-regulation integrated into a business model.
Ideally, CSR policy would function as a built-in, self-regulating mechanism whereby business
would monitor and ensure its support to law, ethical standards, and international norms.
Consequently, business would embrace responsibility for the impact of its activities on the
environment, consumers, employees, communities, stakeholders and all other members of the
public sphere. Furthermore, CSR-focused businesses would proactively promote the public
interest by encouraging community growth and development, and voluntarily eliminating
practices that harm the public sphere, regardless of legality. Essentially, CSR is the deliberate
inclusion of public interest into corporate decision-making, and the honoring of a triple bottom
line: people, planet, profit.
The practice of CSR is much debated and criticized. Proponents argue that there is a strong
business case for CSR, in that corporations benefit in multiple ways by operating with a
perspective broader and longer than their own immediate, short-term profits. Critics argue that
CSR distracts from the fundamental economic role of businesses; others argue that it is nothing
more than superficial window-dressing; others yet argue that it is an attempt to pre-empt the role
of governments as a watchdog over powerful multinational corporations. Corporate Social
Responsibility has been redefined throughout the years. However, it essentially is titled to aid to
an organization's mission as well as a guide to what the company stands for and will uphold to its
consumers.
Development business ethics is one of the forms of applied ethics that examines ethical
principles and moral or ethical problems that can arise in a business environment.
In the increasingly conscience-focused marketplaces of the 21st century, the demand for more
ethical business processes and actions (known as ethicism) is increasing. Simultaneously,
pressure is applied on industry to improve business ethics through new public initiatives and
laws (e.g. higher UK road tax for higher-emission vehicles).
Business ethics can be both a normative and a descriptive discipline. As a corporate practice and
a career specialization, the field is primarily normative. In academia, descriptive approaches are
also taken. The range and quantity of business ethical issues reflects the degree to which business
is perceived to be at odds with non-economic social values. Historically, interest in business
ethics accelerated dramatically during the 1980s and 1990s, both within major corporations and
within academia. For example, today most major corporate websites lay emphasis on
commitment to promoting non-economic social values under a variety of headings (e.g. ethics
codes, social responsibility charters). In some cases, corporations have re-branded their core
values in the light of business ethical considerations (e.g. BP's "beyond petroleum"
environmental tilt).
The term "CSR" came in to common use in the early 1970s, after many multinational
corporations formed, although it was seldom abbreviated. The term stakeholder, meaning those
on whom an organization's activities have an impact, was used to describe corporate owners
beyond shareholders as a result of an influential book by R Freeman in 1984.[2]
ISO 26000 is the recognized international standard for CSR (currently a Draft International
Standard). Public sector organizations (the United Nations for example) adhere to the triple
bottom line (TBL). It is widely accepted that CSR adheres to similar principles but with no
formal act of legislation. The UN has developed the Principles for Responsible Investment as
guidelines for investing entities.
Potential business benefits
The scale and nature of the benefits of CSR for an organization can vary depending on the nature
of the enterprise, and are difficult to quantify, though there is a large body of literature exhorting
business to adopt measures beyond financial ones (e.g., Deming's Fourteen Points, balanced
scorecards). Orlitzky, Schmidt, and Rynes found a correlation between social/environmental
performance and financial performance. However, businesses may not be looking at short-run
financial returns when developing their CSR strategy.
The definition of CSR used within an organization can vary from the strict "stakeholder impacts"
definition used by many CSR advocates and will often include charitable efforts and
volunteering. CSR may be based within the human resources, business development or public
relations departments of an organization,[11] or may be given a separate unit reporting to the CEO
or in some cases directly to the board. Some companies may implement CSR-type values
without a clearly defined team or program.
The business case for CSR within a company will likely rest on one or more of these arguments:
Human resources
A CSR program can be an aid to recruitment and retention,[12] particularly within the competitive
graduate student market. Potential recruits often ask about a firm's CSR policy during an
interview, and having a comprehensive policy can give an advantage. CSR can also help improve
the perception of a company among its staff, particularly when staff can become involved
through payroll giving, fundraising activities or community volunteering. See also Corporate
Social Entrepreneurship, whereby CSR can also be driven by employees' personal values, in
addition to the more obvious economic and governmental drivers.
Risk management
Managing risk is a central part of many corporate strategies. Reputations that take decades to
build up can be ruined in hours through incidents such as corruption scandals or environmental
accidents. These can also draw unwanted attention from regulators, courts, governments and
media. Building a genuine culture of 'doing the right thing' within a corporation can offset these
risks.[13]
Brand differentiation
In crowded marketplaces, companies strive for a unique selling proposition that can separate
them from the competition in the minds of consumers. CSR can play a role in building customer
loyalty based on distinctive ethical values.[14] Several major brands, such as The Co-operative
Group, The Body Shop and American Apparel[15] are built on ethical values. Business service
organizations can benefit too from building a reputation for integrity and best practice.
License to operate
Corporations are keen to avoid interference in their business through taxation or regulations. By
taking substantive voluntary steps, they can persuade governments and the wider public that they
are taking issues such as health and safety, diversity, or the environment seriously as good
corporate citizens with respect to labour standards and impacts on the environment
Stakeholder priorities
Increasingly, corporations are motivated to become more socially responsible because their most
important stakeholders expect them to understand and address the social and community issues
that are relevant to them. Understanding what causes are important to employees is usually the
first priority because of the many interrelated business benefits that can be derived from
increased employee engagement (i.e. more loyalty, improved recruitment, increased retention,
higher productivity, and so on). Key external stakeholders include customers, consumers,
investors (particularly institutional investors), communities in the areas where the corporation
operates its facilities, regulators, academics, and the media.
6. Distinguish between a Financial Investor and a Strategic Investor explaining the role
they play in a Company. (10 marks).
Sol.
In the not so distant past, there was little difference between financial and strategic investors.
Investors of all colors sought to safeguard their investment by taking over as many management
functions as they could. Additionally, investments were small and shareholders few. A firm
resembled a household and the number of people involved – in ownership and in management –
was correspondingly limited. People invested in industries they were acquainted with first hand.
As markets grew, the scales of industrial production (and of service provision) expanded. A
single investor (or a small group of investors) could no longer accommodate the needs even of a
single firm. As knowledge increased and specialization ensued – it was no longer feasible or
possible to micro-manage a firm one invested in. Actually, separate businesses of money making
and business management emerged. An investor was expected to excel in obtaining high yields
on his capital – not in industrial management or in marketing. A manager was expected to
manage, not to be capable of personally tackling the various and varying tasks of the business
that he managed.
Thus, two classes of investors emerged. One type supplied firms with capital. The other type
supplied them with know-how, technology, management skills, marketing techniques,
intellectual property, clientele and a vision, a sense of direction.
In many cases, the strategic investor also provided the necessary funding. But, more and more, a
separation was maintained. Venture capital and risk capital funds, for instance, are purely
financial investors. So are, to a growing extent, investment banks and other financial institutions.
The financial investor represents the past. Its money is the result of past - right and wrong -
decisions. Its orientation is short term: an "exit strategy" is sought as soon as feasible. For "exit
strategy" read quick profits. The financial investor is always on the lookout, searching for willing
buyers for his stake. The stock exchange is a popular exit strategy. The financial investor has
little interest in the company's management. Optimally, his money buys for him not only a good
product and a good market, but also a good management. But his interpretation of the rolls and
functions of "good management" are very different to that offered by the strategic investor. The
financial investor is satisfied with a management team which maximizes value. The price of his
shares is the most important indication of success. This is "bottom line" short termism which also
characterizes operators in the capital markets. Invested in so many ventures and companies, the
financial investor has no interest, nor the resources to get seriously involved in any one of them.
Micro-management is left to others - but, in many cases, so is macro-management. The financial
investor participates in quarterly or annual general shareholders meetings. This is the extent of its
involvement.
The strategic investor, on the other hand, represents the real long term accumulator of value.
Paradoxically, it is the strategic investor that has the greater influence on the value of the
company's shares. The quality of management, the rate of the introduction of new products, the
success or failure of marketing strategies, the level of customer satisfaction, the education of the
workforce - all depend on the strategic investor. That there is a strong relationship between the
quality and decisions of the strategic investor and the share price is small wonder. The strategic
investor represents a discounted future in the same manner that shares do. Indeed, gradually, the
balance between financial investors and strategic investors is shifting in favour of the latter.
People understand that money is abundant and what is in short supply is good management.
Given the ability to create a brand, to generate profits, to issue new products and to acquire new
clients - money is abundant.

These are the functions normally reserved to financial investors:

Financial Management
The financial investor is expected to take over the financial management of the firm and to
directly appoint the senior management and, especially, the management echelons, which
directly deal with the finances of the firm.
1. To regulate, supervise and implement a timely, full and accurate set of accounting books
of the firm reflecting all its activities in a manner commensurate with the relevant
legislation and regulation in the territories of operations of the firm and with internal
guidelines set from time to time by the Board of Directors of the firm. This is usually
achieved both during a Due Diligence process and later, as financial management is
implemented.
2. To implement continuous financial audit and control systems to monitor the performance
of the firm, its flow of funds, the adherence to the budget, the expenditures, the income,
the cost of sales and other budgetary items.
3. To timely, regularly and duly prepare and present to the Board of Directors financial
statements and reports as required by all pertinent laws and regulations in the territories
of the operations of the firm and as deemed necessary and demanded from time to time
by the Board of Directors of the Firm.
4. To comply with all reporting, accounting and audit requirements imposed by the capital
markets or regulatory bodies of capital markets in which the securities of the firm are
traded or are about to be traded or otherwise listed.
5. To prepare and present for the approval of the Board of Directors an annual budget, other
budgets, financial plans, business plans, feasibility studies, investment memoranda and
all other financial and business documents as may be required from time to time by the
Board of Directors of the Firm.
6. To alert the Board of Directors and to warn it regarding any irregularity, lack of
compliance, lack of adherence, lacunas and problems whether actual or potential
concerning the financial systems, the financial operations, the financing plans, the
accounting, the audits, the budgets and any other matter of a financial nature or which
could or does have a financial implication.
7. To collaborate and coordinate the activities of outside suppliers of financial services hired
or contracted by the firm, including accountants, auditors, financial consultants,
underwriters and brokers, the banking system and other financial venues.
8. To maintain a working relationship and to develop additional relationships with banks,
financial institutions and capital markets with the aim of securing the funds necessary for
the operations of the firm, the attainment of its development plans and its investments.
9. To fully computerize all the above activities in a combined hardware-software and
communications system which will integrate into the systems of other members of the
group of companies.
10. Otherwise, to initiate and engage in all manner of activities, whether financial or of other
nature, conducive to the financial health, the growth prospects and the fulfillment of
investment plans of the firm to the best of his ability and with the appropriate dedication
of the time and efforts required.
Collection and Credit Assessment
1. To construct and implement credit risk assessment tools, questionnaires, quantitative
methods, data gathering methods and venues in order to properly evaluate and predict the
credit risk rating of a client, distributor, or supplier.
2. To constantly monitor and analyse the payment morale, regularity, non-payment and non-
performance events, etc. – in order to determine the changes in the credit risk rating of
said factors.
3. To analyse receivables and collectibles on a regular and timely basis.
4. To improve the collection methods in order to reduce the amounts of arrears and overdue
payments, or the average period of such arrears and overdue payments.
5. To collaborate with legal institutions, law enforcement agencies and private collection
firms in assuring the timely flow and payment of all due payments, arrears and overdue
payments and other collectibles.
6. To coordinate an educational campaign to ensure the voluntary collaboration of the
clients, distributors and other debtors in the timely and orderly payment of their dues.
The strategic investor is, usually, put in charge of the following:

Project Planning and Project Management

The strategic investor is uniquely positioned to plan the technical side of the project and to
implement it. He is, therefore, put in charge of:
1. The selection of infrastructure, equipment, raw materials, industrial processes, etc.;
2. Negotiations and agreements with providers and suppliers;
3. Minimizing the costs of infrastructure by deploying proprietary components and
planning;
4. The provision of corporate guarantees and letters of comfort to suppliers;
5. The planning and erecting of the various sites, structures, buildings, premises, factories,
etc.;
6. The planning and implementation of line connections, computer network connections,
protocols, solving issues of compatibility (hardware and software, etc.);
7. Project planning, implementation and supervision.

Marketing and Sales

1. The presentation to the Board an annual plan of sales and marketing including: market
penetration targets, profiles of potential social and economic categories of clients, sales
promotion methods, advertising campaigns, image, public relations and other media
campaigns. The strategic investor also implements these plans or supervises their
implementation.
2. The strategic investor is usually possessed of a brandname recognized in many countries.
It is the market leaders in certain territories. It has been providing goods and services to
users for a long period of time, reliably. This is an important asset, which, if properly
used, can attract users. The enhancement of the brandname, its recognition and market
awareness, market penetration, co-branding, collaboration with other suppliers – are all
the responsibilities of the strategic investor.
 3. The dissemination of the product as a preferred choice among vendors, distributors,
individual users and businesses in the territory.
4. Special events, sponsorships, collaboration with businesses.
5. The planning and implementation of incentive systems (e.g., points, vouchers).
6. The strategic investor usually organizes a distribution and dealership network, a
franchising network, or a sales network (retail chains) including: training, pricing,
pecuniary and quality supervision, network control, inventory and accounting controls,
advertising, local marketing and sales promotion and other network management
functions.
7. The strategic investor is also in charge of "vision thinking": new methods of operation,
new marketing ploys, new market niches, predicting the future trends and market needs,
market analyses and research, etc.
The strategic investor typically brings to the firm valuable experience in marketing and sales. It
has numerous off the shelf marketing plans and drawer sales promotion campaigns. It developed
software and personnel capable of analysing any market into effective niches and of creating the
right media (image and PR), advertising and sales promotion drives best suited for it. It has built
large databases with multi-year profiles of the purchasing patterns and demographic data related
to thousands of clients in many countries. It owns libraries of material, images, sounds, paper
clippings, articles, PR and image materials, and proprietary trademarks and brand names. Above
all, it accumulated years of marketing and sales promotion ideas which crystallized into a new
conception of the business.
Technology
1. The planning and implementation of new technological systems up to their fully
operational phase. The strategic partner's engineers are available to plan, implement and
supervise all the stages of the technological side of the business.
2. The planning and implementation of a fully operative computer system (hardware,
software, communication, intranet) to deal with all the aspects of the structure and the
operation of the firm. The strategic investor puts at the disposal of the firm proprietary
software developed by it and specifically tailored to the needs of companies operating in
the firm's market.
3. The encouragement of the development of in-house, proprietary, technological solutions
to the needs of the firm, its clients and suppliers.
4. The planning and the execution of an integration program with new technologies in the
field, in collaboration with other suppliers or market technological leaders.
Education and Training
The strategic investor is responsible to train all the personnel in the firm: operators, customer
services, distributors, vendors, sales personnel. The training is conducted at its sole expense and
includes tours of its facilities abroad.
The entrepreneurs – who sought to introduce the two types of investors, in the first place – are
usually left with the following functions:
Administration and Control
1. To structure the firm in an optimal manner, most conducive to the conduct of its business
and to present the new structure for the Board's approval within 30 days from the date of
the GM's appointment.
2. To run the day to day business of the firm.
3. To oversee the personnel of the firm and to resolve all the personnel issues.
 4. To secure the unobstructed flow of relevant information and the protection of confidential
organization.
5. To represent the firm in its contacts, representations and negotiations with other firms,
authorities, or persons.
This is why entrepreneurs find it very hard to cohabitate with investors of any kind.
Entrepreneurs are excellent at identifying the needs of the market and at introducing
technological or service solutions to satisfy such needs. But the very personality traits which
qualify them to become entrepreneurs – also hinder the future development of their firms. Only
the introduction of outside investors can resolve the dilemma. Outside investors are not
emotionally involved. They may be less visionary – but also more experienced.
They are more interested in business results than in dreams. And – being well acquainted with
entrepreneurs – they insist on having unmitigated control of the business, for fear of losing all
their money. These things antagonize the entrepreneurs. They feel that they are losing their
creation to cold-hearted, mean spirited, corporate predators. They rebel and prefer to remain
small or even to close shop than to give up their cherished freedoms. This is where nine out of
ten entrepreneurs fail - in knowing when to let go.
Master Of Business Administration-MBA Semester 4
MB0036- Strategic management & Business Policy
Assignment Set-2
Note: Each question carries 10 Marks. Answer all the questions.
1. What is the purpose of a Business Plan? Explain the features of the component of the
Plan dealing with the Company and its product description.(10 marks)
Sol.
A good business plan will help attract necessary financing by demonstrating the feasibility of
your venture and the level of thought and professionalism you bring to the task.
The first step in planning a new business venture is to establish goals that you seek to achieve
with the business. You can establish these goals in a number of ways, but an inclusive and
ordered process like an organizational strategic planning session or a comprehensive
neighborhood planning process may be best. The board of directors of your organization should
review and approve the goals, because these goals will influence the direction of the organization
and require the allocation of valuable staff and financial resources. Your goals will serve as a
filter to screen a wide range of possible business opportunities. If you fail to establish clear goals
early in the process, your organization may spend substantial time and resources pursuing
potential business ventures that may be financially viable but do not serve the mission of your
organization in other important ways. A liquor store on the corner may be a clear money-maker;
however, it may not be the retail to assist your community desires.
The following are examples of goals you may seek to achieve through the creation of a new
business venture:
Revenue Generation – Your organization may hope to create a business that will generate
sufficient net income or profit to finance other programs, activities or services provided by your
organization.
Employment Creation – A new business venture may create job opportunities for community
residents or the constituency served by your organization.
Neighborhood Development Strategy – A new business venture might serve as an anchor to a
deteriorating neighborhood commercial area, attract additional businesses to the area and fill a
gap in existing retail services. You may need to find a use for a vacant commercial property that
blights a strategic area of your neighborhood. Or your business might focus on the rehabilitation
of dilapidated single family homes in the community.
Whenever possible, goals should have quantifiable outcomes such as “to generate a minimum of
$50,000 of net income or profit within three years”; “to employ at least 15 community residents
within two years in new permanent jobs at a livable wage”; “to occupy and support a minimum
of 10,000 square feet of neighborhood commercial space”; or “to rehabilitate 50 single-family
houses over three years.” Clearly defined and quantifiable goals provide objective measurements
to screen potential business opportunities. They also establish clear criteria to evaluate the
success of the business venture.
Establish Goals
Once you have identified goals for a new business venture, the next step in the business planning
process is to identify and select the right business. Many organizations may find themselves
starting at this point in the process. Business opportunities may have been dropped at your
doorstep. Perhaps an entrepreneurial member of the board of directors or a community resident
has approached your organization with an idea for a new business, or a neighborhood business
has closed or moved out of the area, taking jobs and leaving a vacant facility behind. Even if this
is the case, we recommend that you take a step back and set goals. Failing to do so could result in
a waste of valuable time and resources pursuing an idea that may seem feasible, but fails to
accomplish important goals or to meet the mission of your organization.
Depending on the goals you have set, you might take several approaches to identify potential
business opportunities.
Local Market Study: Whether your goal is to revitalize or fill space in a neighborhood
commercial district or to rehabilitate vacant housing stock, you should conduct a local market
study. A good market study will measure the level of existing goods and services provided in the
area, and assess the capacity of the area to support existing and additional commercial or home-
ownership activity. This assessment is based on the shopping and traffic patterns of the area and
the demographic and socio-economic characteristics of the community. A bad or insufficient
market study could encourage your organization to pursue a business destined to fail, with
potentially disastrous results for the organization as a whole. Through a market study you will be
able to identify gaps in existing products and services and unsatisfied demand for additional or
expanded products and services. If your organization does not have staff capacity to conduct a
market study, you might hire a consultant or solicit the assistance of business administration
students from a local college or university. Conducting a solid and thorough market study up
front will provide essential information for your final business plan.
Analysis of Local and Regional Industry Trends: Another method of investigating potential
business opportunities is to research local and regional business and industry trends. You may be
able to identify which business or industrial sectors are growing or declining in your city,
metropolitan area or region. The regional or metropolitan area planning agency for your area is a
good source of data on industry trends.
Internal Capacity: The board, staff or membership of your organization may possess
knowledge and skills in a particular business sector or industry. Your organization may wish to
draw upon this internal expertise in selecting potential business opportunities.
Internal Purchasing Needs / Collaborative Procurement: Perhaps, your organization
frequently purchases a particular service or product. If nearby affiliate organizations also use this
service or product, this may present a business opportunity. Examples of such products or
services include printing or copying services, travel services, transportation services, property
management services, office supplies, catering services, and other products. You will still need
to conduct a complete market study to determine the demand for this product or service beyond
your internal needs or the needs of your partners or affiliates.
Identify Business Opportunities
Buying an Existing Business: Rather than starting a new business, you may wish to consider
purchasing an existing business. Perhaps a local retail or small light manufacturing business that
has been an anchor to the local retail area or a much-needed source of jobs in the neighborhood
is for sale. Its closure would mean the loss of jobs and services for your neighborhood. Your
organization might consider purchasing and taking over the enterprise instead of starting a new
business. If you decide to pursue this option, you still need to go through the steps of creating a
business plan. However, before moving ahead, these are just a few important areas to research in
assessing the business you plan to purchase:
Be sure to conduct a thorough review of the financial statements for the past three to five years to
determine the current fiscal status and recent financial trends, the validity of the accounts
receivable and the status of the accounts payable. Are all the required licenses and permits in
place and can they be transferred to a new owner?
Also look at the quality of key employees who, because of their expertise, may need to remain
with the business.
You will also need to assess the customer or client base and determine whether its members will
remain loyal to the business after it changes hands.
Another area to evaluate is the perception or image of the business. Inspect the facilities and talk
to suppliers, customers and other businesses in the area to learn more about the reputation of the
business.
At this early stage of your planning process, be sure to consult an attorney experienced in
corporation law. As a non-profit corporation, engaging in income-generating activities not
related to your mission may affect your tax-exempt status. You may also wish to protect your
organization from any liability issues connected with the proposed business activity. After you
have decided on a particular business activity, have a qualified attorney advise you on the proper
corporate structure for your new venture. In addition to qualified legal counsel, seek the expertise
of an experienced professional in that particular industry. He or she will bring valuable
knowledge and insights regarding the industry that will prove extremely useful during the
business planning process.
Advisory
You have decided on a business opportunity that meets the goals of your organization. Now you
are ready to test the feasibility of the venture and to present your business concept to the world.
A solid business plan will clearly explain the business concept, describe the market for your
product or service, attract investment, and establish operating goals and guidelines.
The first step in writing your business plan is to identify your target audience. Will this be an
internal plan the board will use to assess the feasibility and appropriateness of the business? Or
will this plan be distributed to a larger external audience such as funding sources, commercial
lenders or the community to gain financial backing and political support for the proposed
venture? The content and emphasis of the plan will shift according to the audience.
You will also need to decide who will conduct the necessary research and write the plan. The
following table lists the advantages and disadvantages of several options for getting the work
done. You might consider a combination of the options.

Creating One’s Own Business Plan

It is also important to establish a timeline for completing the plan. A business plan can be
completed by one staff member working full time in as little as a week, although a thorough
market analysis will add several days at least. A committee will probably need much more time.
Combinations of staff, volunteers, consultants and a board committee may lengthen or shorten
the process depending on skill level, available time, experience with planning and research, and
the group’s facilitation needs. Now that you have decided who will put together your business
plan and have set a timeline for its completion, you are ready to begin assembling the elements
of the plan. Your business plan should contain the following sections:
· Executive summary
· Company and product description
· Market description
· Operations
· Management and ownership
· Financial information and timeline
· Risks and their mitigation
A solid business plan will clearly explain the business concept, describe the market for your
product or service, attract investment, and establish operating goals and guidelines.
1 Executive Summary
In this section of your business plan, provide a description of your company, the industry you
will be competing in, and the product or service you plan to offer.
Sell your concept! The executive summary may be the first and only section of your business
plan that most of your audience will read. Tell the audience why the business is a great idea.
Some readers will look at this section to determine whether or not they want to learn more about
a business. Other readers will look to the executive summary as a sample of the quality and
professionalism of the overall plan. The executive summary should be no more than one to three
pages long and should answer the following questions:
· Who are you? (describe your organization)
· What are you planning? (describe the service or product)
· Why are you planning it? (discuss the demand and market for the service or product)
· How will you operate your business?
· When will you be in operation? (overview of timeline)
· What is your expected net profit? (discuss your projected sales and costs)
Although the executive summary is the first part of your business plan, you should write it after
you have written the other sections of the plan in order to include the most important points of
each section.
2 Company and Product Description
In describing your company be sure to include what type of business you are planning
(homeownership development, wholesale, retail, manufacturing
or service) and the legal structure (corporation or partnership). You should discuss why you are
creating this new venture, referencing the goals you set at the beginning of the business planning
process. Also include a description of your non-profit organization, the role it has played in
developing this new venture and the on-going role, if any, it will play in operations. Give the
reader a brief overview of the industry, describing historic and current growth trends.
Whenever possible, provide documentation or references supporting your trend analysis such as
articles from business-oriented newspapers and magazines, research journals or other
publications. Include these references in the attachments of your business plan.
Product or Service
After describing your company and its industry context, describe the products or services you
plan to provide. Focus on what distinguishes your product or service from the rest of the market.
Discuss what will attract consumers to your product or service. Provide as much detail as
necessary to inform the reader about the particular characteristics of your product that distinguish
it from its competition – many nonprofits, for example, expect to produce higher-quality housing
than otherwise exists in the area. Mention any distinctive elements in the manufacture of the
product, such as being “hand-made by a particular people from a specific area.” If you are
providing a service, explain the steps you will take to provide a service that is better than your
competition.
Price
Provide a realistic estimate of the price for your product or service, and discuss the rationale
behind that price. An unrealistic price estimate may undermine the credibility of your plan and
raise concerns that your product or service may not be of sufficient quality or that you will not be
able to maintain profitability in the long run. Describe where this price positions you in the
marketplace: at the high end, low end or in the middle of the existing range of prices for a similar
product or service.
In other sections of the plan you will discuss the target market for your product or service and
also provide additional details on how the price of your product fits into the overall financial
projections for the enterprise.
Place
Describe the location where you will produce or distribute your product or provide your service.
Discuss the advantages of the location, such as its accessibility, surrounding amenities and other
characteristics that may enhance your business.
Depending on your anticipated customer base, accessibility to your location via public
transportation could affect the marketability of your product or service.
Customers
In this section of your business plan, you will describe the customer base or market for your
product or service. In addition to providing a detailed description of your customer base, you will
also need to describe your competition (other local developers or nearby businesses providing a
similar service to your potential customer base).
Who will purchase your product or use your service? How large is your customer base? Define
the characteristics of your target market in terms of its:
· Demographics – Measures of age, gender, race, religion and family size.
· Geography – Measures based on location.
· Socioeconomic Status – Measures based on individual or household annual income.
Provide statistical data to describe the size of your target market. Sources for this information
may include recent data from the Bureau of Statistics, state or local census data, or information
gathered by your organization, such as membership lists, neighborhood surveys and group or
individual interviews. Be sure to list the sources for your data, as this will further validate your
market assumptions. Include any relevant information regarding the growth potential for your
target market if your business is expected to rely on growth. Cite any research forecasting
population increases in your target market or other trends and factors that may increase the
demand for your product or service.
Competition
Discuss how people identified in your target market currently meet their need for your product or
service. What other businesses exist in your area that are similar to your proposed venture? For
example, for a housing business, what are the local markets for purchase and rental? How much
are people currently paying for similar products or services? Briefly describe what differentiates
your proposed venture from these existing businesses and discuss why you are entering this
market.
Sales Projections
Present an estimate of how many people you expect will purchase your product or service. Your
estimate should be based on the size of your market, the characteristics of your customers and
the share of the market you will gain over your competition. Project how many units you will sell
at a specified price over several years. The initial year should be broken down in monthly or
quarterly increments. Account for initial presentation and market penetration of your product and
any seasonal variations in sales, if appropriate.
3 Market Description
In this section, you will describe how you plan to operate the business. You will present
information on how you plan to create your product or provide your service, describe the staff
required to operate and manage the business, discuss the equipment and materials necessary, and
define the site or facility requirements, if any. A key component of the operation of your
business will be your sales and marketing strategy, so you must describe how you will inform
your target market about your product or service and how you will convince customers to
purchase it.
Production Description
Describe the steps for creating your product, from the raw material or initial stage to the finished
product, packaged and ready for distribution and sale. If you plan to provide a service, describe
the process of service deliver (such as the initial interview, for instance, if you are offering
consulting services), assessment, research and design, and final presentation. Provide a
description of any sub-contractors or external services you plan to use in the production process.
The reader of the plan may be unfamiliar with the industry, so avoid using industry jargon to
describe the production process.
Staffing
Describe the staff required to operate your business: discuss how many people you will need;
describe the tasks they will carry out; and the skills they will need. Prepare a chart outlining the
salaries and benefits you will provide to your workforce. Provide information on how you will
recruit staff and provide initial and ongoing training of employees.
4 Equipment and Materials
To manufacture your product or provide your service, what type of equipment will you need?
Describe any machinery and vehicles necessary in the production, packaging and distribution of
your product, including any office equipment such as computers, copiers, furniture, fixtures and
telephone systems. Also discuss the types of materials you will use in the production process and
describe the source and cost of those materials.
Facility
Describe the type of facility in which you will house your business. Indicate the amount of
building space you will need for production and administration. Also discuss any building
features required for the production process such as high ceilings, specialized ventilation and
heating systems, sanitized laboratory space or vehicular accessibility. If you have already
identified a location and a facility that meets your requirements, describe its features. Even if you
are planning to provide a service instead of manufacturing a product, you need to demonstrate
that you will have adequate space for administrative functions and other activities related to the
service you plan to provide .
Market Description
Describe your strategy for locating your target market, informing or educating customers about
your product or service and convincing them to purchase it. Provide details on the methods you
will use to advertise your product, such as print media (advertisements in newspapers, magazines
or trade journals), electronic media (television, radio and the Internet), direct mail, telemarketing,
individual sales agents or representatives, or other approaches. Discuss the product’s or service’s
features you plan to emphasize to gain the attention of your target market. Also detail how you
will distribute and sell your product or service. Will you use sales agents or existing retail
outlets, or directly distribute your product through a delivery service such as United Parcel
Service, Federal Express or independent trucking company?
5 Operations
In this section of your business plan, describe the senior managers responsible for overseeing the
start-up and operation of your business, their background and their responsibilities in the
business. Be sure to highlight your management team’s experience in managing the production,
marketing and administration of similar businesses or within the selected industry and attach the
resumes of each member to the plan. Be sure to provide a complete job description of any
vacancies in your management team. Describe the responsibilities, the skills, the background
required and the steps you plan to take to fill that key position.
Ownership
What is its relationship to your existing organization? Who is on the board of directors / board of
advisors of the new business and what are their backgrounds and areas of expertise? Potential
investors or lenders will be interested in the ownership stake of the board of directors and also in
what portion of the company’s equity is available. Success is often due to one’s contacts, so fully
describe your business relationships with attorneys, accountants and advertising or public
relations agencies, and any industry-specific services such as suppliers and distributors.
6 Management and Ownership
In this section you will describe the financial feasibility of your planned venture and provide
several financial reports and statements to document why your business will be a viable
enterprise and a sound investment. At a minimum, you should provide a brief descriptive
narrative for each of the following financial statements and include a copy in the attachments to
your plan:
· Start-up budget
· Cash flow projection
· Income statement
· Balance sheet
In preparing these statements, you may want to seek the advice of a certified public accountant
(CPA).
Start-up Budget
Describe the initial expenses you will incur to get your business up and running. Some items you
might include in your start-up budget research and product design and development expenses,
legal incorporation and licensing expenses, facility purchase or rental, equipment and vehicle
purchase or rental, and initial material or supply purchase. You can use Worksheet B as a
sample format for preparing your start-up budget.
Cash Flow Projection
This statement presents a month-to-month schedule of the estimated cash inflows and outflows
of your business for the first year. This schedule should indicate how much money your business
will have or need and when you will need it. You should describe your sources of income and
capital, detailing your projected sales revenue and indicating your own or investor equity
contribution, lenders, investors and other sources of capital. Itemize your projected expenses,
distinguishing between the cost of goods sold (materials, supplies, production labor), overhead
expenses (rent, utilities, insurance, maintenance, interest, insurance, administrative costs and
salaries, legal and accounting services, marketing, taxes, fees and other ongoing operating
expenses) and capital expenditures (land and buildings, equipment, furniture, vehicles, and
building repair or renovation expenses). In preparing this statement, account for a gradual
increase in sales from initial product introduction and any expected seasonal fluctuations in
revenue projections.
Income Statement
Prepare a multiyear (three- to five – year) statement of projected revenue, expenses, capital
expenditures and cost of goods sold. If you make assumptions about the growth of your business,
provide supporting documentation such as growth patterns of similar companies or studies that
forecast an industry-wide growth rate. This statement should indicate to the reader the potential
of your business to generate cash and its profitability over time. For an existing business, also
submit an income statement for at least three prior consecutive years. Lenders may look at this
statement to determine whether your business can support the additional debt you are requesting.
Balance Sheet
A start-up business probably will not have any assets or liabilities at the time you are drafting the
business plan. Provide a copy of the balance sheet of the business’s sponsoring organization or
individual. Describe in your narrative any assets that will be allocated to the start-up of the
business.
7 Financial Information and Start up Timeline
Capital Requirements
Describe the amount and type of financing you are seeking for your business. Are you looking
for debt from a lender or equity from an investor? Refer to your start up budget and cash flow
statement presented earlier. Discuss how and when you will draw on these funds and how they
will affect the bottom line. Also describe any commitments or investments that you may have
already secured.
If you are seeking investors, such as venture capitalists, describe what they will receive in return
for their capital. What is the repayment period and the expected return on investment? Also
discuss the nature of their ownership share and how it may change with future investments.
Equity investors are looking for rates of return higher than rates offered by banks or other
business lenders. The level of risk in your business and industry will help to determine the actual
market rate, as will the availability of equity dollars. Check with other businesses (although not
direct competitors) to see what return on investment their investors demanded. Be prepared to
negotiate. And make sure you research the investment market carefully; several socially minded
investment pools exist and more are in development. or lenders, describe the type of financing
you are seeking:
· Seed Capital – Short-term financing to cover start-up costs.
· Fixed Asset Financing – Longer-term financing for property, building improvements,
equipment or vehicles. The asset being purchased is usually pledged as security for the loan.
· Working Capital – Short-term financing to cover operating expenses and to bridge gaps in
cash flow.
Initial Start-up Timeline
Provide a timeline of tasks and events necessary to get your business operational. Be sure to
describe the current stage you are in and what steps you have taken to date. Include deadlines for
task completion. Set realistic deadlines according to your capacity to complete these tasks. The
following is a list of some of the steps you may wish to include:
· Filing legal incorporation documents
· Identifying and securing suitable space
· Designing and developing the product
· Obtaining required licenses or permits
· Securing necessary financing
· Leasing or purchasing equipment
· Hiring key staff
· Hiring and training of production or support staff
· Purchasing materials and production supplies
· Beginning marketing activities
· Opening
Although it is impossible to know exactly what will go wrong in starting and running your
business, thinking about different challenges will strengthen your plan. Potential problems could
include:
· Insufficient public subsidy available to new home owners or residents
· The competition drops its prices
· Not enough customers
· Production costs exceed estimates
· Difficulty in finding qualified employees
· Environmental or governmental changes such as tax increases, additional regulations or
population changes
For each potential problem, discuss its likelihood and describe possible solutions or actions you
might undertake to mitigate the problem.
Risks and their Mitigation
Although it is impossible to know exactly what will go wrong in starting and running your
business, thinking about different challenges will strengthen your plan.
After you have completed all of the elements of your business plan, you should focus its
presentation. A well-organized plan will assist you in communicating the most important
elements of your business plan to the reader, and a persuasive plan will help you to convince the
reader to invest in your business.
Executive Summary
As mentioned earlier, this section should be written last. However, if you have already written
the executive summary, review it to make sure it embodies the following characteristics. Because
it is the first and possibly the only section of the plan that many readers may see, the executive
summary should provide an overview of the plan and entice the reader to read the whole plan or
to agree to meet with you. The executive summary should be no more than three pages and
should briefly describe the most important elements of the plan. Review the Executive Summary
section of this manual for more tips on this critical introduction to your business.
2. Write short notes on :
a) sales projections (10 marks).
Sol.
Sales Projections
Present an estimate of how many people you expect will purchase your product or service. Your
estimate should be based on the size of your market, the characteristics of your customers and
the share of the market you will gain over your competition. Project how many units you will sell
at a specified price over several years. The initial year should be broken down in monthly or
quarterly increments. Account for initial presentation and market penetration of your product and
any seasonal variations in sales, if appropriate.
Steps for Developing Sales Projections
Your business plan is not just a funding tool, but also a blueprint for how your business should
operate. The following are steps for developing sales projections.
Step I:
Estimate
For each product or service, estimate the number of people who are likely to buy and when they
will buy it. You can get this information from asking your likely customers about their possible
use of your business, or you can base your estimates on your knowledge of the market.
Step 2:
Use a Calendar
Estimate your sales and number of customers served during one week. Using the totals for a
week, make projections for each month. For the first few months, keep in mind that business will
start off slowly before people become more aware of your business. Use will most likely increase
as people learn about your products and services. Seasonal variations may affect your business as
well. You will use these numbers to project your equipment, supply and staffing needs, as well
as income.
Cost Account Heads:
· Organizational Start up Costs
· Product Design/Development
· Research & Development
· Legal/Licensing Expenses
· Property & Facilities
· Land/Building Purchase
· Initial Lease Deposit
· Building Repairs/Improvements
· Equipment/Machinery
· Production-related
· Administrative/Office Equip.
· Materials & Supplies
· Personnel
· Key Employees
· Contract Labour/Temps
· Training Expenses
· Marketing Expenses
· Advertisements
· Brochures/Literature/Other
· Insurance Premiums
· Distributor Contracts
· Contingency (5%)
Expenses:
Costs of Goods Sold
· Materials/Supplies
· Labor
· Rent
· Utilities
· Insurance
· Admin. Exp. (PT Sec.)
· Legal & Accounting
· Marketing
· Equipment Maintenance/Supplies
· Facility Maintenance
· Fees/Miscellaneous
Debt / Equity Investment:
· Equipment Loan
· Building Rehabilitation Loan
· Grants
· Owner Equity
Expenses
· Cost of Goods Sold
· Wages & Benefits
· Materials
· Supplies
Overhead Expenses:
· Rent
· Utilities
· Building Maintenance/Security
· Marketing
· Accounting
· Legal
· Administrative Expense
· Interest Expense
· Depreciation
The Business Priorities are based upon six top-level objectives; these are:
· To make Business data available both to decision-makers and as much as possible available in
the public domain;
· To ensure all holders of Business information are able to participate.
· To ensure that the data available through the NETWORK are of known quality;
· To ensure that the NETWORK Gateway gives access to data on Location and species used to
inform decisions affecting Business at local, regional, national and international levels;
· To promote knowledge, use and awareness of the NETWORK;
· To enhance the skills base and expertise needed to support and develop the NETWORK.
i) The objectives have cross-cutting themes which are:
A. Infrastructure development
B. Data standards and tools
C. Capacity building
D. Working with the wider public
E. Co-ordination and promotion
i) In addition, the partners will contribute to the overall realisation of the objectives through work
that they initiate on their own account, but which does not necessarily fall under the focussed
objectives for the Network.
ii) A series of assumptions have been made in formulating the Business Priorities and their
associated work programme. These are:
· It is assumed that the present way of working, i.e. a lead partner approach for each project will
be retained;
· The plan is not intended to represent all the work that could be undertaken;
· It is anticipated that other work towards the principal aim of adding content and providing a
fully functional gateway will be adopted by the NETWORK as part of its programme, but this
work would have to be prioritised against this core activity and separately resourced;
To give additional focus to the challenging nature of the task that the NETWORK is setting
itself, a series of principle drivers have been recognised. The drivers are:
· Processes – This driver relates to facilitated targeted action on the ground through providing
knowledge of resource location, extent, pattern of distribution, data quality and gaps. It also has
the potential for engaging more partners in the NETWORK;
· Environmental Impact Assessment (EIA) and Strategic Environmental Assessment – This
driver is concerned with providing ready access to data on location, extent, pattern and quality of
Business.
· Data contributor engagement – This driver is concerned with accessing sources of data for the
NETWORK enabling the assessment of actions and continual improvement in the targeting of
actions from the two previous drivers;
· Operational use – This relates to the use of the NETWORK within the day to day business of
agencies as a source of data relevant to local reporting or casework;
· Generic enhancement – This driver encompasses capacity building and Recording Schemes and
other contributing organisations and user groups, in order to ensure the continued and enhanced
supply and use of information.
These lead naturally to three broad areas of work:
· Developing the recording network;
· Enhancing the Internet Gateway in terms of its functionality and the data it accesses;
· Ensuring that the benefits already secured through the earlier work are maintained.
The plan also acknowledges the need to co-ordinate activity between the members of the
NETWORK and their partners, and to communicate the progress and successes of the work
programme.

b) importance of creativity in Business

Sol.
Creativity
Everyone in business is creative.
Some of most creative people are in manufacturing.
They actually CREATE products that change the world.
Some of the least creative people perhaps are in advertising.
They spend most of their creative energy telling manufacturers that they…aren’t creative!
Salespeople Are Creative – They are natural born story-tellers.
Accountants are creative.
Best Creative Exercise Ever
Write down your ideas.
You have a ton every day.
But most of the time, you can’t remember them by the day’s end.
Don’t let spelling and grammar issues or relentless self-editing stop you.
Get your ideas on paper (Let someone else edit it.)
Go retro: Carry a notebook, pen, and calendar into your meetings.
Look up at people.
Story First, Technology Last.
Don’t invest in a presentation class called “How to Use PowerPoint”….…until you’ve taken a
class called “How to Tell Stories and Connect with Your Audience”.
2 A Simple Creative Exercise…
Simplify everything. Your life, your home, your office, your desk, your processes, vision, policy,
procedures. Everything.
Fixing Problems is Creative.
Your job is to fix problems, not to complain.
Brainstorming
Don’t tell people that their ideas are bad, especially if you don’t have a better one.
It’s only your life’s work.
Never say, “It’s not my job to be creative.”
How to Lose an Audience…
· Show your audience slides with columns of numbers.
· Refuse to tell them a story about the meaning of the numbers.
· Do not read your speech or presentation.
· Instead, read your audience.
How about a Show?
Try “giving a performance” instead of merely “giving a presentation.”
Everyone in Sales Knows…
· Tell stories.
· Don’t just provide data.
Avoid Meetings.
Do not attend more than two meetings a day, or else you will never get any real creative work
done.
Get Fresh Ideas.
Leave the office building at least once a day.
Another Lame Excuse…
Designers should put more of their passion into designing great work, instead of endless
(boring) discussions about the superiority of the Macintosh over the PC!
The Lame Excuse …
“I can’t [write/design/create] because I don’t have the latest [software/hardware/ upgrade]….”
You can’t let a machine take credit for your creativity.
And you can’t blame a machine for your creative failures, either.
Don’t Blame the Tool!
The more you become a master of your particular creative form….
….the fewer tools you will use.
Master carpenters use fewer tools than novices.
So do cooks.
Use what works.
Creativity: Use it or Lose it.
Create something every day.
Creativity takes place every day, not once in a while.
It’s not rare.
It’s just been mystified – Own your creativity.
Facts and observations
Giga-investments made in the paper and pulp industry, in the heavy metal industry and in other
base industries, today face scenarios of slow growth (2-3 % p.a.) in their key markets and a
growing over-capacity in Europe.
The energy sector faces growing competition with lower prices and cyclic variations of demand.
Productivity improvements in these industries have slowed down to 1-2 % p.a .
Global financial markets make sure that capital cannot be used non-productively, as its owners
are offered other opportunities and the capital will move (often quite fast) to capture these
opportunities.
The capital markets have learned “the American way”, i.e. there is a shareholder dominance
among the actors, which has brought (often quite short-term) shareholder return to the forefront
as a key indicator of success, profitability and productivity.
There are lessons learned from the Japanese industry, which point to the importance of
immaterial investments. These lessons show that investments in buildings, production technology
and supporting technology will be enhanced with immaterial investments, and that these are even
more important for re-investments and for gradually growing maintenance investments.
The core products and services produced by giga-investments are enhanced with life-time
service, with gradually more advanced maintenance and financial add-on services.
New technology and enhanced technological innovations will change the life cycle of a giga-
investment.
Technology providers are involved throughout the life cycle of a giga-investment.
Giga-investments are large enough to have an impact on the market for which they are
positioned:
A 3,00,000 ton paper mill will change the relative competitive positions; smaller units are no
longer cost effective.
A new teechnology will redefine the CSF:s for the market.
Customer needs are adjusting to the new possibilities of the giga-investment.
The proposition that we can describe future cash flows as stochastic processes is no longer valid;
neither can the impact be expected to be covered through the stock market.
Types of options
· Option to Defer
· Time-to-Build Option
· Option to Expand
· Growth Options
· Option to Contract
 · Option to Shut Down/Produce
· Option to Abandon
· Option to Alter Input/Output Mix
Table of Equivalences:
INVESTMENT OPPORTUNITY VARIABLE CALL OPTION
Present value of a project’s operatingS Stock price.
cash flows.
Investment costs X Exercise price
Length of time the decision may bet Time to expiry.
deferred.
Time value of money. rf Risk-free interest rate
Risk of the project. σ Standard deviation of
returns on stock
Fuzzy numbers (fuzzy sets) are a way to express the cash flow estimates in a more realistic way.
This means that a solution to both problems (accuracy and flexibility) is a real option model
using fuzzy sets.
Self Assessment Questions I
State whether the following statements are True or False:
1. The people involved in manufacturing actually create products that change the world.
2. In the rapidly changing world of global markets, e-commerce, evolving tele-communications
and internet, the secrets of Complex System evolution offer us a basis on which to reflect on the
management of our businesses.
3. Complex Systems thinking informs us how to achieve a high rate of delivery of new products
and services and rapid adaptation to changing conditions.
4. The creativity and imagination of a business will come from the dynamic interaction of
diverse individuals.
5. Efficiency of execution must precede imagination and creativity.
3. What factors are to be taken into account in a crisis communications strategy?(10
marks).
Sol.
The following items should be taken into account in the crisis communications strategy:
· Communications should be timely and honest.
· To the extent possible, an audience should hear news from the organization first.
· Communications should provide objective and subjective assessments.
· All employees should be informed at approximately the same time.
· Give bad news all at once – do not sugarcoat it.
· Provide opportunity for audiences to ask questions, if possible.
· Provide regular updates and let audiences know when the next update will be issued.
· Treat audiences as you would like to be treated.
· Communicate in a manner appropriate to circumstances:
– Face-to-face meetings (individual and group)
– News conferences
– Voice mail/email
– Company Intranet and Internet sites
– Toll-free hotline
– Special newsletter
– Announcements using local/national media.
Preplanning for communications is critical. Drafts of message templates, scripts, and statements
can be crafted in advance for threats identified in the Risk Assessment.
Procedures to ensure that communications can be distributed at short notice should also be
established, particularly when using resources such as Intranet and Internet sites and toll-free
hotlines.
Official Spokesperson
The organization should designate a single primary spokesperson, with back-ups identified, who
will manage/disseminate crisis communications to the media and others. This individual should
be trained in media relations prior to a crisis. All information should be funneled through a single
source to assure that the messages being delivered are consistent.
It should be stressed that personnel should be informed quickly regarding where to refer calls
from the media and that only authorized company spokespeople are authorized to speak to the
media. In some situations, an appropriately trained site spokesperson may also be necessary.
4. What elements should be included in a Marketing Plan under Due Diligence while
seeking investment in for your Company? (10 marks).
Sol.
The Process of Due Diligence
A business which wants to attract foreign investments must present a business plan. But a
business plan is the equivalent of a visit card. The introduction is very important – but, once the
foreign investor has expressed interest, a second, more serious, more onerous and more tedious
process commences: Due Diligence.
"Due Diligence" is a legal term (borrowed from the securities industry). It means, essentially, to
make sure that all the facts regarding the firm are available and have been independently
verified. In some respects, it is very similar to an audit. All the documents of the firm are
assembled and reviewed, the management is interviewed and a team of financial experts, lawyers
and accountants descends on the firm to analyze it.
First Rule:
The firm must appoint ONE due diligence coordinator. This person interfaces with all outside
due diligence teams. He collects all the materials requested and oversees all the activities which
make up the due diligence process.
The firm must have ONE VOICE. Only one person represents the company, answers questions,
makes presentations and serves as a coordinator when the DD teams wish to interview people
connected to the firm.
Second Rule:
Brief your workers. Give them the big picture. Why is the company raising funds, who are the
investors, how will the future of the firm (and their personal future) look if the investor comes in.
Both employees and management must realize that this is a top priority. They must be instructed
not to lie. They must know the DD coordinator and the company’s spokesman in the DD process.
The DD is a process which is more structured than the preparation of a Business Plan. It is
confined both in time and in subjects: Legal, Financial, Technical, Marketing, Controls.
The Marketing Plan
Must include the following elements:
· A brief history of the business (to show its track performance and growth)
· Points regarding the political, legal (licences) and competitive environment
· A vision of the business in the future
· Products and services and their uses
· Comparison of the firm’s products and services to those of the competitors
· Warranties, guarantees and after-sales service
· Development of new products or services
· A general overview of the market and market segmentation
· Is the market rising or falling (the trend: past and future)
· What customer needs do the products / services satisfy
· Which markets segments do we concentrate on and why
· What factors are important in the customer’s decision to buy (or not to buy)
· A list of the direct competitors and a short description of each
· The strengths and weaknesses of the competitors relative to the firm
· Missing information regarding the markets, the clients and the competitors
· Planned market research
· A sales forecast by product group
· The pricing strategy (how is pricing decided)
· Promotion of the sales of the products (including a description of the sales force, sales-related
incentives, sales targets, training of the sales personnel, special offers, dealerships, telemarketing
and sales support). Attach a flow chart of the purchasing process from the moment that the client
is approached by the sales force until he buys the product.
· Marketing and advertising campaigns (including cost estimates) – broken by market and by
media
· Distribution of the products
· A flow chart describing the receipt of orders, invoicing, shipping.
· Customer after-sales service (hotline, support, maintenance, complaints, upgrades, etc.)
· Customer loyalty (example: churn rate and how is it monitored and controlled).
Legal Details
· Full name of the firm
· Ownership of the firm
· Court registration documents
· Copies of all protocols of the Board of Directors and the General Assembly of Shareholders
· Signatory rights backed by the appropriate decisions
· The charter (statute) of the firm and other incorporation documents
· Copies of licences granted to the firm
· A legal opinion regarding the above licences
· A list of lawsuit that were filed against the firm and that the firm filed against third parties
(litigation) plus a list of disputes which are likely to reach the courts
· Legal opinions regarding the possible outcomes of all the lawsuits and disputes including their
potential influence on the firm
Financial Due Diligence
· Last 3 years income statements of the firm or of constituents of the firm, if the firm is the result
of a merger. The statements have to include:
· Balance Sheets
· Income Statements
· Cash Flow statements
· Audit reports (preferably done according to the International Accounting Standards, or, if the
firm is looking to raise money in the USA, in accordance with FASB)
· Cash Flow Projections and the assumptions underlying them
Controls
· Accounting systems used
· Methods to price products and services
· Payment terms, collections of debts and ageing of receivables
· Introduction of international accounting standards
· Monitoring of sales
· Monitoring of orders and shipments
· Keeping of records, filing, archives
· Cost accounting system
· Budgeting and budget monitoring and controls
· Internal audits (frequency and procedures)
· External audits (frequency and procedures)
· The banks that the firm is working with: history, references, balances
Technical Plan
· Description of manufacturing processes (hardware, software, communications, other)
· Need for know-how, technological transfer and licensing required
· Suppliers of equipment, software, services (including offers)
· Manpower (skilled and unskilled)
· Infrastructure (power, water, etc.)
· Transport and communications (example: satellites, lines, receivers, transmitters)
· Raw materials: sources, cost and quality
· Relations with suppliers and support industries
· Import restrictions or licensing (where applicable)
· Sites, technical specification
· Environmental issues and how they are addressed
· Leases, special arrangements
· Integration of new operations into existing ones (protocols, etc.)
A successful due diligence is the key to an eventual investment. This is a process much more
serious and important than the preparation of the Business Plan.
5. Distinguish between Joint Ventures and Licensing, explaining the relative advantages
and disadvantages of each.(10 marks).
Sol.
Licensing and Assigning IP rights
One basic choice is whether you should actively exploit your IP rights yourself, or to keep your
IP rights and license them to others to use, or sell or assign the rights to another person. You can,
in principle, make different choices in different countries for exploiting IP rights for the same
underlying invention. If you are based in Malaysia, you could in theory decide to exploit your
patent yourself in the East Asian region, grant a licence a Canadian company to use the invention
in North America, and sell or assign the rights in Europe to a Danish company – whether or not
this is the best approach in practice is a different matter, of course.
A licence is a grant of permission made by the patent owner to another to exercise any specified
rights as agreed. Licensing is a good way for an owner to benefit from their work as they retain
ownership of the patented invention while granting permission to others to use it and gaining
benefits, such as financial royalties, from that use. However, it normally requires the owner of
the invention to invest time and resources in monitoring the licensed use, and in maintaining and
enforcing the underlying IP right.
The patent right normally includes the right to exclude others from making, using, selling or
importing the patented product, and similar rights concerning patented processes. The license can
therefore cover the use of the patented invention in many different ways.
For instance, licences can be exclusive or non-exclusive. If a patent owner grants a non-exclusive
licence to Company A to make and sell their patented invention in Malaysia, the patent owner
would still be able to also grant Company B another non-exclusive for the same rights and the
same time period in Malaysia. In contrast, if a patent owner granted an exclusive licence to
Company A to make and sell the invention in Malaysia, they would not be able to give a licence
to
anyone else in Malaysia while the licence with Company A remained in force.
Licenses are normally confined to a particular geographical area – typically, the jurisdiction in
which particular IP rights have effect. You can grant different exclusive licences for different
territories at the same time. For example, a patent owner can grant an exclusive licence to make
and sell their patented invention in Malaysia for the term of the patent, and grant a separate
exclusive licence to manufacture and sell their patented invention in India for the term of the
patent.
Separate licences can be granted for different ways of using the same technology. For example,
if an inventor creates a new form of pharmaceutical delivery, she could grant an exclusive
licence to one company to use the technology for an arthritis drug, a separate exclusive licence to
another company to use it for relief of cold symptoms, and a further exclusive licence to a third
company to use it for veterinary pharmaceuticals.
A licence is merely the grant of permission to undertake some of the actions covered by
intellectual property rights, and the patent holder retains ownership and control of the basic
patent.
An assignment of intellectual property rights is the sale of a patent right, or a share of the patent.
It should be remembered that the person who makes an invention can be different to the person
who owns the patent rights in that invention. If an inventor assigns their patent rights to someone
else they no longer own those rights. Indeed, they can be in infringement of the patent right if
they continue to use it.
Patent licences and assignments of patent rights do not have to cover all patent rights together.
Licences are often limited to specific rights, territories and time periods. For example, a patent
owner could exclusively licence only their importation right to a company for the territory of
Indonesia for 12 months. If an inventor owns patents on the same invention in five different
countries, they could assign (or sell) these patents to five different owners in each of those
countries. Portions of a patent right can also be assigned – so that in order to finance your
invention, you might choose to sell a half-share to a commercial partner.
If you assign your rights, you normally lose any possibility of further licensing or commercially
exploiting your intellectual property rights. Therefore, the amount you charge for an assignment
is usually considerably higher than the royalty fee you would charge for a patent licence. When
assigning the rights, you might seek to negotiate a licence from the new owner to ensure that you
can continue to use your invention. For instance, you might negotiate an arrangement that gives
you licence to use the patented invention in the event that you come up with an improvement on
your original invention and this falls within the scope of the assigned patent. Equally, the new
owner of the assigned patent might want to get access to your subsequent improvements on the
invention.
Licensing Advantages
• An Inventive Incentive
• "Licensing", tried and true
• Fair and Balanced
• Product Exclusivity
• Inventions of interest to you
• You are free to view our inventions
• An informed business decision
• A production head start
• We are vitally committed to your success
• A resource for future projects

Joint Venture Agreements and Start-up Companies

Rather than simply exploit your IP rights by licensing or assignment, you might choose to set up
a new legal mechanism to exploit your technology. Typically this can be a partnership expressed
through a joint venture agreement or a new corporation, such as a start-up or spin-off company.
These options require much more work on your part than licensing or assigning your intellectual
property rights. This could be a desirable choice in cases where:
– you want to keep your institute’s research activities separate from the development and
commercialisation of technology, especially when your institute has a public interest focus or an
educational role; or
– you need to attract financial support from those prepared to take a risk with an unproven
technology (‘angel investors’ or ‘venture capitalists’), and they will only take on a long-term risk
if they can get a share of future profits of the technology.
In working out the right vehicle for your technology, you will normally need specific legal
advice from a commercial lawyer, preferably one with experience in technology and
commercialisation in your jurisdiction. The laws governing partnerships and companies differ
considerably from one country to another, and this discussion is only intended to give a general
flavour of the various options.
A joint venture agreement involves a formal, legally binding commitment between two or more
partners to work together on a shared enterprise. It is normally created for a specific purpose (for
example, to commercialise a specific new technology) and for a limited duration. For instance,
you might sign a partnership agreement with a manufacturing company to develop and market a
product based on your invention. Before entering into a joint venture agreement, you need to
check out possible commercial partners and make sure that the objectives of your potential
commercial partners are consistent with your objectives. In the joint venture agreement, the
partners typically agree to share the benefits, as well as the risks and liabilities, in a specified
way.
But this kind of partnership isn’t normally able in itself to enter legal commitments, or own IP in
its own right, so that the partners remain directly legally responsible for any losses or other
liabilities that the partnership’s operations create. In other words, a partnership which is not a
corporation, a company or a specific institution doesn’t really separately exist as a legal entity.
By contrast, a company is a new legal entity (a ‘legal person’ recognised by the law as having its
own legal identity) which can own and license IP and enter into legal commitments in its own
right. A spin-off company is an independent company created from an existing legal body – for
example, if a research institute decided to turn its licensing division or a particular laboratory
into a separate company. A start-up company is a general term for a new company in its early
stages of development. If a company is defined as a limited liability company, the partners or
investors normally cannot lose more than their investment in the company (but officeholders in
the company might be personally responsible for their actions in the way they manage the
company). This separate legal identity means that a start-up company can be a useful way of
developing and commercialising a new technology based on original research, while keeping the
main research effort of an institute focussed on broader scientific and public objectives, and
insulated from the commercial risks and pressures of the commercialisation process. At the same
time, the research institute can benefit from the commercialisation of its research, through
receiving its share of the profits and growth in assets of the spin-off company, thus strengthening
the institute’s capacity to do scientific research.
The company is normally owned through shares (its ‘equity’). These effectively represent a
portion of the assets and entitlement to profits of the company. Investors can purchase shares in
the company, which is one way of bringing in new financial resources to support the
development of the technology – in exchange, the investors stand to benefit from the growth in
the company’s worth, as their shares proportionately rise in value, and to receive a portion of any
profits produced by the company’s operations, commensurate with the number of shares they
own. If it is a public company, shares in the company can be bought and sold on the open stock
market. An initial public offering is when the shares in a start up company are first made
available to the public to purchase. A private company’s shares, by contrast, are not traded on the
open market (but can still be bought and sold).
The option of starting up your own company to manufacture and market your patented invention
requires you to have business skills, marketing skills, management skills and substantial capital
to draw on for factory premises, hiring staff and so on. But it also can offer a mechanism for
attracting financial backing for research, development and marketing, which can improve access
to the necessary resources and expertise.
Which model of commercialisation is best for you?
Each new technology and associated package of IP rights is potentially difference, and the
mechanism you choose for commercialisation should take into account the particular features of
the technology. One basic consideration is to what extent you, as originator of the technology,
wish to be involved and to invest in the subsequent development of the technology. You will
need to compare the advantages and disadvantages of each model of commercialisation.
Generally speaking, the higher degree of risk and commitment of finance and resources you can
invest, the higher the degree of control you can secure over exploitation of the technology
invention, and the higher the financial return to your institution may be.
There are many possible variations on each of these general models, and in practice they can
overlap. In deciding which model of commercialisation is best for you, it is always a good idea
to seek commercial or legal advice.
Remember that IPRs alone do not guarantee you a financial return on your invention. You need
to make good commercial decisions to benefit financially from your intellectual property rights.
Properly managed, intellectual property rights should not be a burden but should yield a return
from your hard work in creating an invention.
Advantages of Joint ventures:
• Provide companies with the opportunity to gain new capacity and expertise
• Allow companies to enter related businesses or new geographic markets or gain new
technological knowledge
• access to greater resources, including specialised staff and technology
• sharing of risks with a venture partner
• Joint ventures can be flexible. For example, a joint venture can have a limited life span
and only cover part of what you do, thus limiting both your commitment and the
business' exposure.
• In the era of divestiture and consolidation, JV’s offer a creative way for companies to exit
from non-core businesses.
• Companies can gradually separate a business from the rest of the organisation, and
eventually, sell it to the other parent company. Roughly 80% of all joint ventures end in a
sale by one partner to the other.
6. You wish to commercialize your invention. What factors would you weigh in choosing an
appropriate course? (10 marks).
Sol.
Following are the ways to commercialize my invention.
Licensing and Assignment - Defined
The difference between licensing and selling your invention is comparable to leasing vs. selling
house. When you sell your house, you transfer your title, making someone else in charge of and
liable for the house from that point on. When you sell your invention, the scenario is the same,
except that the process is called “assigning” rather than selling. You, the inventor would be the
“assignor” and the person receiving the title or ownership of the patent would be the “assignee.”
Instead of selling, though, you may choose to rent out your house. In this case, you retain the title
to the house and give someone permission to use it for a limited period of time. In consideration
for this, they pay you on a monthly, yearly or other basis. The terms of this lease are entirely up
to you and the person leasing your house. It is up to you to negotiate within the boundaries of the
law.
When you license an invention, it’s nearly the same as leasing. You’re offering a manufacturer,
for example, the right to manufacture and sell your invention for a period of time, and in
consideration for this they pay you on a quarterly basis. In this case you are the “licensor” and
the company is the “licensee.” It is up to the parties to negotiate the terms of the license within
the boundaries of antitrust laws and other regulations that would affect licenses and similar
business arrangements.
Should I Sell or License?
You will generally have a better chance of licensing your invention instead of assigning (selling)
your rights for two reasons:
First, it is initially hard to ascertain what the eventual value of an invention will be. This will
almost invariably result in a win/lose situation. If the value is estimated high, the inventor wins
and the company loses. On the other hand, if the estimates are low, the inventor loses out.
Second, companies don’t like to pay cash up front unless they absolutely have to. Generally,
when a company makes a commitment to manufacture and promote an invention, they are
already anticipating a substantial financial commitment for tooling, manufacturing setup,
engineering expenses, advance purchases of raw materials, marketing, and promotional
expenses. A company that is savvy with licensing negotiations will state that the more money
they pay the inventor up front, the fewer resources they will have available to put into the
promotion. This is a hard point to argue against, particularly if you’re interested in the long-
range commercial success of your invention.
At this point, Inventors have often already incurred substantial initial expenses for patenting,
prototyping and research, and need to be reimbursed as soon as possible. Therefore, the inventor
can argue that the potential licensees should at least reimburse them for these out-of-pocket
expenses. After all, these are expenses the company would have normally paid if they had
developed such a product on their own. At that point, the company may very well come back to
the table and agree to reimburse you for such initial expenses. However, they may want to make
it an advance against future royalties. Bear in mind that all negotiations are unique and this is just
an example.
When you assign (sell) your invention, you will typically lose control of it. Although you may
have cash in hand from the sale of your invention, the company has the prerogative to ditch your
technology and simply “sit on it” unless you’ve made other arrangements. In some cases it is just
as important to the inventor to see his invention commercialized as it is to receive the cash from
it. Having an invention commercialized can give an inventor a substantial head start in attracting
interest in his additional inventions. This may eventually be worth more to an inventor than the
initial cash he would receive from his first commercialized invention.
Should I Go It Alone?
Some inventors prefer to keep their inventions close and go into business for themselves, which
comes with its own set of risks and rewards.
There are several different elements at play during the commercialization of an invention: the
company, the management, the technology, the market, and the marketing team. Each of these is
a variable. The more variables you introduce, the greater the risk of failure. If you start with a
new company under new management with a new product, your chance of success is obviously
much slimmer than an existing company already in the field with experience and knowledge in a
similar product line. Even when you look at an experienced company like 3-M, which brings
many new products to market, you’ll find that the company’s new products fail often. With all its
resources, 3-M’s success rate is said to be only 30%. Unless you have greater resources, your
success rate may be even less.
Because there are significant startup risks, it’s important to seriously investigate the distinct
advantages of having your invention introduced by an existing company with experience in your
field can promote your product effectively and already has a skilled sales force with an existing
client base. These factors can greatly reduce the amount of time it takes to introduce your
invention to the marketplace. What you lose in control when you license can be gained tenfold
from a timing standpoint, and in reducing your risk.
Licensing offers another strong advantage when it is time to sell your manufactured invention to
customers. Manufacturers who introduce only one invention or a very small product line often
have a hard time selling to large accounts. Large retail outlets prefer to deal with companies
where they can do one-stop shopping. Buyers (or purchasing agents) for the big outlets want to
reduce the number of bills they get and the number of vendors they see each week. This is why
the introduction of a new invention to retailers by a new company is particularly challenging.
Licensing also has advantages over starting your own company because few products have an
unlimited life cycle. In time, your invention may be replaced by new technology. What will your
company sell then? Most single-item companies that are still around after five years have done
so by introducing new products and expanding their product line. Companies need new products
to survive.
Sometimes starting your own company is the only way to go. If you’ve attempted the licensing
route and no manufacturer is interested in your invention at its current stage of development, you
may need to do a small market test with a limited production run to prove your invention has
sales potential. Then if your sales results are positive, you may pique the interest of a potential
licensee who can take your invention to the next step.
It is easy to get ‘upside down’ financially with invention projects. This is especially true since
inventors have a tendency to overestimate the ultimate value of their inventions. Get some
realistic market research as early in the game as possible. If you find that you must make a
substantial investment to actually manufacture an invention to prove its commercial viability and
to interest potential licensees, keep careful track of your expenses and constantly weigh these
expenses against any royalty potential that may result.
There are too many sad stories of inventors pouring money into inventions that can never
provide a return on their investment. Inventors always take a risk when they spend time and
money on an idea and if they’re lucky, it’ll pay off quite well. The lesson is to minimize your
risks so you can bail out or put the project on hold if warranted. It will save you time, money,
and the personal energy you’ll need for future successes.