ENTREPRENEURSHIP AND COMMUNICATION TOPIC ONE: INTRODUCTION TO THE CONCEPT OF ENTREPRENEURSHIP: The meaning of entrepreneurship: Entrepreneurship has commonly

been used as a factor of production i.e. agents of production. Success in production requires effective combination of four major factors namely: Land which is the natures provision in the process of production e.g. lakes, plants, rivers and soil. Labour which is the mental and physical exertion in the production process. It includes skilled, semi-skilled and unskilled labour. Capital this is the man made factors used in the production process e.g. machines, equipment and roads. Entrepreneurship: It is the organizer of all the factors of production. An entrepreneur therefore undertakes the following: Employs and rewards the factors. Assumes all the risks of the production process. Starts and operates the business. NOTE: Entrepreneurship therefore entails coming up with an idea that no one else has thought of and capitalizing on it to set up an enterprise. It is the process of coming up with new processes or ways of achieving some set objectives of an enterprise mainly profitability objectives. Definitions of entrepreneurship: i. It is the purposeful activity of an individual or group of associated individuals, undertaken to initiate, maintain or aggrandize profit by production or distribution of economic goods or services. (A.H. Cole). It involves the willingness to assume risks in undertaking an economic activity particularly a new one i.e. the decision to undertake any activity requires one to be ready to assume risks. (William Diamond). Entrepreneurship means the function of foreseeing investment and production opportunity, organizing an enterprise to undertake a new production process, raising capital, hiring labour,

ii.

iii.

arranging for the supply of raw materials and selecting top managers for the day to day operation of an enterprise. (Benjamin Higgins). iv. v. vi. It means the function of creating something new, organizing and co-ordinating and undertaking risk and handling economic uncertainty. (B.C. Tandon). It is the ability to create and build something from practically nothing. It requires the ability to take calculated risk and to reduce the chances of failure. (Jeffery Timmons). Entrepreneurship is based on purposeful and systematic innovation. It includes not only the independent businessman but also company directors and managers who actually carry out innovative functions. (Schumpeter). NOTE: Entrepreneurship is generally the process of coming up with a new business idea, looking for the needed resources and making the business idea a reality. The meaning of an entrepreneur: The word entrepreneur is derived from the French verb entreprendre which means to undertake. An entrepreneur is one who creates a business in the face of risks and uncertainty for the purpose of achieving profit and growth by identifying significant opportunities and assembling the necessary resources to capitalize on them. In his 1911 book The theory of Economic Development, economist Joseph Schumpeter said that entrepreneurs are more than just business creators; they are change agents in society. An entrepreneur conceives the idea of establishing a business, displays considerable initiative and determination in bringing his idea into practice. He therefore performs the following functions in the process: Perceives opportunities for profitable investment. Explores the prospects of starting such a business. Obtains the required license. Arranges for initial capital. Supplies technical knowhow. Bears all risks.
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Employs the factors of production.

CHARACTERISTICS OF SUCCESSFUL ENTREPRENEURS: The important traits that would make an entrepreneur more successful in his business include the following: i. Desire to achieve:

Successful entrepreneurs will always want to excel and succeed in competition with others and accomplish the necessary goals of a business. ii. Action-oriented:

This is exhibited by their motivation to take action when and where necessary. iii. Problem solver:

They have the ability to solve problems and make decisions which involve a lot of determination. They have a high drive and ability to constantly struggle to accomplish solution to business problems. The entrepreneur should follow a systematic procedure in decision making and problem solving which involves the following steps according to David Schwartz: Defining the problem or the situation: It involves accurate assessment of the problem so that management does not only treat symptoms but deal with the problem in totality. A problem is a felt need i.e. the gap between the present and the desired state of affairs on the subject matter of the decision. Developing alternative solutions: Alternatives are the possible courses of action and only one may be chosen. The decision maker however must try to find out the various alternatives available in order to get the best satisfying course of action. Gathering the information pertinent to the alternatives: Here information is collected regarding the various alternatives from primary and secondary sources to make sure that knowledge with respect to each alternative is available. Information is collected regarding rules, procedures, policies and opinions available relating to such alternatives. It helps in the analysis of alternatives and assists in evaluation of each alternative generated to enhance choice of the best course of action. Evaluating alternatives and considering constraints:
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Here, the manager eliminates some alternatives because of existing constraints that may be either external or internal e.g. lack of financial resources and legal implications. It involves risk analysis, cost benefit analysis and the use of decision trees to ensure that all alternatives are evaluated against the organizations ability to implement them. Selecting the best alternative: Here, the manager chooses the best alternative i.e. the one with the highest overall level of feasibility, satisfaction and with the fewest and undesirable consequences. Implementing the alternative: Here, the course of action chosen should be implemented to solve the problem. It is the actual action where the alternative solution chosen is put into effect and management should avail the necessary resources for effective implementation of the decisions. Evaluating results: It is a follow up of the decision outcomes and taking corrective actions i.e. the manager needs to judge how well he is dealing with the problem. iv. Risk taker:

Successful entrepreneurs take moderately calculated risks i.e. they enjoy the excitement of challenges and they dont gamble. They should be able to judge the level of danger correctly and then be sufficiently well prepared to live with the consequences. v. Initiativeness:

They have the ability to generate new ideas and implement them a head of others to be able to create a competitive advantage. vi. Independence:

Successful entrepreneurs like doing things their own way to ensure that their business fulfill their needs. They make independent business decisions and work out their business destiny. vii. Positivity/ optimism:

A successful entrepreneur must approach the business task with the hope of success and not with the fear of failure. They always work hard to achieve the business objectives. viii. Self-confidence and self efficacy:

An entrepreneur must be confident in achieving realistic and challenging goals coupled with a sense of effectiveness that will ultimately contribute to his success. Self confidence helps an

entrepreneur to project a positive image about himself and the business and to help him gain the confidence of others. Self-efficacy is an individual belief in his ability to undertake and accomplish some particular tasks. ix. Innovativeness and creativity:

It is important for entrepreneurs to adopt new ways and introduce new ideas in order to improve their businesses. An innovator utilizes inventions and discoveries in order to make new combinations. This is realized by doing the following: The introduction of a new product into the market. The instituting of a new production technology which is not yet tested. Opening of a new market. The discovery of a new source of supply of raw material. Re-organization of an enterprise.

x.

Flexibility and open-mindness: An entrepreneur should be open to change i.e. they should adapt easily to changing situations and circumstances. One should be able to try new things e.g. marketing strategies, new business systems and new technology. An entrepreneur should create a working atmosphere that nurtures and appreciates new ideas. xi. Goal-orientation:

Successful entrepreneurs have a strong desire to achieve their goals and those of the business. They always channel their energies to achieve the goals and objectives set by themselves e.g. high profits and market leadership. xii. Learning from mistakes:

An entrepreneur should assess why his ideas didnt work or why he lost a particular customer. Once he has made the mistake and is aware of the reason behind the failure, he should use it to his advantage and try a different strategy or modify the initial idea. xiii. Perseverance:

The entrepreneur should understand that great businesses take time to establish i.e. he should persevere till he starts to break even. NOTE: Other characteristics that also define a successful entrepreneur include: a. Manipulative. b. Impatient. c. Energetic and charismatic. d. Effective human relations skills. e. Aggressiveness. f. Highly motivated.

FUNCTIONS AND ROLES OF ENTREPRENEURSHIP a) They are promoters They scan the environment, identify opportunities, mobilize resources and implement the business ideas. They therefore promote by ensuring that the ideas are turned into a business reality. b) They are partners Entrepreneurs solicit the participation of other people in the enterprise. This may arise due to the following: Degree of failure or success involved. Complexity of business ideas that may require more than one person to run. Making use of the influence, experience and capacity of others e.g. the case of nominal partners.
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Consolidating finances and other resources through joint business.

c) They are shareholders Potential entrepreneurs would participate as shareholders under the following circumstances: When they do not have the capacity to manage such enterprises singly. When the investment requires too much money. When they do not want to commit their full time or other resources in the enterprise. When there is need to spread their investment to reduce risks.

d) Managing the business This is the process of ensuring the success of an enterprise through effective planning, organizing, directing, controlling and hiring of the right employees. e) Initiation of ideas Entrepreneurs are supposed to come up with new ideas regarding designing of products, uses of products and other existing resources. Successful entrepreneurs generate ideas important in the running of the enterprise. f) Risk taking Entrepreneurs take risks in business by starting a business which has a chance of success or failure. In risk taking, an entrepreneur will be responsible for the fortunes and misfortunes of the business. Some individuals resign from well paying jobs to start businesses and this requires proper calculation of risks. THE PROCESS OF ENTREPRENEURSHIP Although enterprises are different and unique like the entrepreneurs who create them, most entrepreneurs go through the same process of creating enterprises and realizing the benefits of the process. Such a process includes the following steps: a. Self-discovery This involves learning what one enjoys doing, examining ones strengths and weaknesses, work experience and relating it to potential opportunities. b. Identifying opportunities:
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This involves looking for needs, wants, problems and challenges that are not yet being met or dealt with effectively. Opportunities are therefore attractive business ideas that may be viable for the entrepreneur. This stage requires the entrepreneur to identify market gaps and consumer needs that have not been fulfilled effectively through the following techniques: Market research Discussion with business-minded individuals Consultation with business consultants and advisors Brainstorming sessions with existing employees Discussion with customers Observation at market place

c. Generating and evaluating ideas: Depending on the market gaps and needs identified the entrepreneur here uses his creativity and past experiences to devise new and innovative ways to solve the problems or meet the realized needs and then concentrate to come up with a business reality. This may require the entrepreneur to find answers to the following: Do the consumers or users need such a product Would the consumer understand the idea behind such a new product Will it require additional resources? What are the substitutes or competing products available in the market? What competition exists in the market?

d. Planning phase: This involves researching and identifying resources needed to turn the ideas into a viable enterprise. It requires proper research and the drawing of a business plan and formulation of marketing strategies. Here, decisions are made regarding location of the business and the best business opportunity is selected. The entrepreneur must develop an effective business plan. e. Raising start-up capital:

Using the business plan, the entrepreneur involves himself in the raising of initial capital by attracting investors and interested partners. This stage also involves test marketing activities whereby the entrepreneur will assure himself of the market response. f. Start up of the enterprise: This is the process of launching of the enterprise or opening it publicly for the purpose of business activities. It involves developing a customer base and adjusting to the market response through operational plans. g. Growth stage: This involves the process of developing and following strategic plans and adapting to new circumstances. When enterprises grow, they attain market stability and develop effective strategies of remaining relevant in the market. h. Harvest stage: It may involve selling the business and enjoying the rewards. It also involves reaping the benefits of a mature business. At this stage some entrepreneurs move on to new enterprises and new challenges. ADVANTAGES OF ENTREPRENEURSHIP: 1. It offers personal financial gain to the entrepreneur. 2. It leads to self employment that makes an individual his own boss, offers job satisfaction and flexibility of undertaking the activities. 3. It leads to employment opportunity for the entrepreneur and other people. 4. It leads to the development of more industries and enterprises especially in the rural areas or disadvantaged regions. 5. It encourages the processing of the local materials into finished goods for domestic consumption as well as for export purposes. 6. It enhances healthy competition which encourages higher quality products. 7. More goods and services are made available. 8. It leads to the development of new markets that will facilitate the use of new products and services created. 9. It promotes the use of modern technology in the informal sectors. 10. It helps to develop entrepreneurial qualities and attitudes among potential entrepreneurs.
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11. It offers tax advantages to the country. 12. There will be reduced migration of talents by creating a better domestic entrepreneurship climate.

POTENTIAL DRAWBACKS OF ENTREPRENEURSHIP 1. Uncertainty of income: There is no guarantee that an entrepreneur will earn enough money to survive. 2. Risks of losing the entire investment: Business failure can lead to financial ruin for an entrepreneur and the small business failure rate is relatively high. 3. Long hours and hard work: Businesses often demand long hours from their owners. The average small business owner works 52 hours a week or more. 4. Lower quality of life until the business gets established: Business owners find that their roles as husbands or wives and fathers or mothers take a back seat to their roles as company founders. 5. High level of stress: Failure of a business may mean total financial ruin and that creates intense levels of stress and anxiety. 6. Complete responsibility: Many entrepreneurs find that they must make decisions on issues about which they are not really knowledgeable. 7. Discouragement: This arises due to many different obstacles/ challenges. CONTRIBUTIONS OF ENTREPRENEURSHIP TO ECONOMIC GROWTH AND DEVELOPMENT: It leads to the development of infrastructure:

As entrepreneurship activities increase countrywide, it creates the need for increased accessibility leading to the development and improvement of road networks and communication networks. It enhances the utilization of local resources:

Entrepreneurship has promoted the employment of local resources leading to an increase in their value. This reduces waste e.g. the jua kali sector has always used massively the local resources to generate goods and services. It promotes modern technology:
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Entrepreneurs are very creative and therefore they contribute to the utilization and development of technology. Employment creation:

Entrepreneurs solve the unemployment in the country by hiring people in their enterprises skilled, semi-skilled and unskilled.

They lead to capital formation:

Entrepreneurs create wealth by paying labourers wages and salaries. Such earnings are later invested to facilitate further production of goods and services. They promote entrepreneurial culture:

Entrepreneurial culture is a way of embracing the concept of finding new opportunities in business and gathering the necessary resources to fulfill such opportunities. By portraying successful images, entrepreneurs become role models to many young Kenyans. This helps to create commercial awareness and impart entrepreneurial skills to younger generations. It leads to favourable export earnings:

The products and services created and offered by entrepreneurs may also be exported to improve the foreign exchange earnings of the country. Such monies have been used to improve other sectors. They facilitate innovation:

Through entrepreneurship, new products, ideas and processes are generated and improved for the success of the country. They increase revenue collection through taxation:

Entrepreneurs pay taxes to the Government which is important in the development of other sectors. It increases the level of independence in the countrys production:

With increased entrepreneurship activities, there is reduced domination of certain sectors by foreigners. It leads to self reliance:
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Entrepreneurship enables the citizens of a country to survive with reduced borrowing and less dependency on other countries.

ENTREPRENEURIAL SCHOOLS OF THOUGHT: Entrepreneurial activities can be looked at from a macro and a micro view: THE MACRO VIEW: This point of view presents a number of schools of thought which suggests that a range of external factors are the forces behind the entrepreneurial process. These factors are beyond the control of the individual entrepreneur. Schools of thought under this view include: i. ii. iii. Environmental school of thought. Financial/ capital school of thought. Displacement school of thought.

Environmental school of thought: The proponents of this school of thought argue that entrepreneurial desires are molded by external factors which may be positive or negative and they affect a potential entrepreneurs lifestyle. They further argue that institutions and societal values grouped together form an environmental framework that strongly influences the development of entrepreneurs e.g. the social group a person belongs to often may affect the potential development of an entrepreneur. Financial/ capital school of thought: This school presents the view that the desire to become an entrepreneur is based on the capital seeking process i.e. that the entrepreneurial process is about making decisions involving finances at every major point in the business process as follows: a. Start up or acquisition stage:

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In the beginning, the entrepreneurs main concern is deciding on the major sources of funds to give him a head start on the business. He may either take a loan or decide to save up his own. The success or failure of this decision making process will lead him further to make a decision as to whether to proceed or abandon the project. b. Ongoing business stage: The financial consideration here is how to manage cash, make investments, undertake financial analysis and evaluate the financial position of the business. The decision to be made here is whether to increase, maintain or reduce the size of the business.

c. Decline or succession stage The entrepreneur will be forced at some point to investigate the future profitability of the business. Following this analysis, he may then consider options such as corporate buyout, dissolution or succession. Displacement school of thought: This view suggests that individuals will not pursue a business idea unless they are prevented or displaced from doing other activities. Factors that may force one from pursuing other ends in life include: Political factors: These may include riots and wars that may force one to move from station to another. Cultural factors e.g. family backgrounds. Economic factors: This could be as a result of a loss of current employment.

THE MICRO VIEW: The view presents factors that are specific to an entrepreneur who has the ability or control to direct or adjust the outcome of each major influence. The following schools of thought comprise this view point: i. ii. The entrepreneurial trait school of thought. The venture opportunity school of thought.

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iii.

The strategic formulation school of thought.

The entrepreneurial trait school of thought: Those behind this school of thought suggest that if certain traits associated with successful entrepreneurs are established and supported early in life, this will lead eventually to entrepreneurial success. The traits usually exhibited by successful entrepreneurs include: Creativity. Determination. Achievement. Technical knowledge.

The venture opportunity school of thought: This school of thought suggests that the ability to become an entrepreneur lies in being able to search for ideas sources, develop concepts and implement business opportunities. The proponents of this school argue that creativity, market awareness, developing the right idea at the right time for the right market are the essential ingredients to entrepreneurial success. Opportunity identification is thus the key force behind becoming an entrepreneur. The strategic formulation school of thought: This approach to entrepreneurial theory emphasizes that the planning process is vital for successful business development. The argument is that through strategic planning and formulation, an individual is able to develop an effective business this is because he will be able to identify and make use of unique markets, unique people, unique products and unique resources.

TYPES AND CLASSIFICATION OF ENTREPRENEURS: Entrepreneurs can be classified as follows:

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i. ii. iii. iv.

According to personality. According to activity or action. According to behavior. General classification

ACCORDING TO PERSONALITY: 1. Improver: They are focused in using their enterprises as a means to improve the world. They therefore have an unwaving ability to run their businesses with high integrity and ethics. They are perfectionists and are over-critical of employees and customers. 2. The advisor: They provide an extremely high level of assistance and advice to customers. Their motto is that customers are right and they do everything to please them.

3. The superstar: They are very energetic, charismatic, workaholics and very competitive. Charisma is a natural quality exhibited by a person that makes him unique and liked by everybody and is acquired through the exercise of integrity, communication and the general conduct of the person. 4. The artist: They are highly creative and hence mostly found in business demanding creativity e.g. advertising agencies. They tend to build their businesses around the unique talents and the creativities that they have. 5. The visionary: They build a business based on their future vision and thoughts of the entrepreneur himself. They have high degree of curiosity to understand the world around them and they always set up plans to avoid failures. 6. The analyst:

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They always follow a particular system in dealing with issues. They mostly excel at problem solving. 7. The fireball: They operate businesses on the basis of optimism and they are very aggressive. Their businesses make the customers feel that the company is creative in solving their problems. 8. The hero: They have proper will power and ability to lead the world and their businesses through any challenge. 9. The healer: They have the ability to nurture a business and bring harmony in its operation. They have a unique ability to survive and persist with an inner calm.

ACCORDING TO ACTIVITY/ ACTION: 1) Advisor: They give advice to their clients as a basis of their business undertaking e.g. lawyers and financial advisors.

2) Administrator/ organizer: Their businesses are in the line of taking care of events successfully i.e. they can plan weddings and oversee different projects. 3) Builders/ creators: They are those who create something tangible where it did not exist before e.g. artists, bakers, carpenters and designers. 4) Caretakers:
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They are people with helping personality and they find opportunity to take care of plants, people and property for a leaving e.g. those operating children homes. 5) Entertainer/ Host: They have the ability to thrive well on being with people comfortably. They have enterprise openings in the hospitality industry or service industry e.g. hair dressing, entertainers, actors, musicians and singers. 6) A communicator/ trainer: They have the ability to transmit information in different languages and they always start enterprises in the field of sales and marketing, training institutions, writing and other information-based commitments. 7) Investors/ owners: These are individuals who have money to invest either in shares, real estate or other type of businesses. 8) Technologists/ Engineers: They are those who have the ability to explore entrepreneurial opportunities in technology-based areas such as software development and engineering.

CLASSIFICATION ACCORDING TO BEHAVIOR i. All or Nothing entrepreneurs:

They are the ones who either win big or loose it all. They take huge risks in starting enterprises and performing operational activities.

ii.

Better safe than entrepreneurs:

They are the ones who take calculated risks making sure that the enterprise grow at a controlled pace. They do not take huge risks and they can take a long time building a business. iii. Serial entrepreneurs:

They are the ones who are addicted to the process of entrepreneurship and they enjoy starting new business enterprises. They do not concentrate on a single enterprise.
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iv.

Geek entrepreneurs:

They are the engineers who become entrepreneurs because they want to build the best products out of their engineering skills. They are driven by the product development processes. v. Intrapreneurs/ Corporate entrepreneurs:

They are employees of a company who contribute to the success of a business by applying their innovative skills for a reward called a salary or wage. They do not have a direct responsibility for profits and losses. They are able to mobilize their capabilities to deal with new markets and improve the entire business. GENERAL TYPES OF ENTREPRENEURS: I. Self-employed entrepreneurs:

They are individuals who perform all the work by themselves and enjoy all the profits i.e. it is where a person works for himself. II. Opportunistic entrepreneurs:

They are interested in having their businesses grow and expand by delegating responsibility to others and increasing the number of employees working in the business. Their interest is to take advantage of environmental circumstances to succeed. III. Inventive entrepreneurs/ inventors:

They are capable of coming up with new ideas that can be turned into business reality. They have the ability to design a new product and then create a new company to develop, produce and sell the products. They are mostly found in the I.T sector.

IV.

Pattern multipliers:

They are those who look for an idea that someone else has already created and make it into another model. They concentrate in improving other peoples ideas and hence not original in their approach. V. Economy of scale exploiter:

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Economy of scale is the advantages that accrue to a given enterprise due to its operation in large scale. Such entrepreneurs therefore benefit from large volumes of sales by offering discounts, charging low prices and operating with very low overheads. VI. Buy-Sell artist:

They are the entrepreneurs who deal in buying companies or enterprises for the purpose of improving them before selling them for a profit. VII. Acquirers:

They are those who take over a business started by another person and use the idea to make it successful. It mostly happens when there is financial problem in the current operations that may make an individual to sell the business enterprise or let it be taken by other people. VIII. Speculators:

They concentrate in purchasing commodities with the view that their prices will increase in future and sell them at a profit. IX. Craft entrepreneurs:

They exploit and utilize their personal skills in accomplishing activities and their businesses are fairly static i.e. they do not expand. X. Growth entrepreneurs e.g. Warren Bufffet

They buy highly potential and profitable companies which they sell after sometime or off-load some shares to welcome other investors in the undertaking. NOTE: Other types of entrepreneurs can be identified as follows: Innovative/ First generation entrepreneurs: They are those who introduce new goods, methods of production, discover new markets and reorganize the enterprise. Imitative entrepreneurs/ Copy cats: They are characterized by readiness to adopt successful innovations started by innovative entrepreneurs i.e. they do not come with new ideas but imitate what others have come up with. They are common in developing economies where the level of technology is low. Fabian entrepreneurs:

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They are characterized by very great caution and skepticism in experimenting any change in their enterprise. They imitate only when it is perfectly clear to them that failure to do so would result in a loss of a competitive advantage. Drone entrepreneurs/ Conservatives: They are characterized by a refusal to adopt new opportunities to make changes in his business. They therefore remain traditional by refusing to adopt new ways of doing business even to the extent of making losses. They therefore like to maintain status quo hence not aggressive in decision making. Modern entrepreneurs: They are those who undertake business activities that suits the current market needs to match with the changing demand. Classical entrepreneurs: Their aim is to maximize their economic returns at a level that is consistent with the current abilities of the business and to facilitate the survival of the business. Pure entrepreneurs: They are those who are motivated by psychological and economic rewards. They undertake a business activity for their personal satisfaction in work, status or ego. Induced entrepreneurs: They are those who are inspired to take up business activities due to various policy measures, incentives, concessions and tax benefits offered by the government e.g. availability of micro finance services. Spontaneous entrepreneur: They are naturally talented. They therefore have the initiative, boldness and confidence in their inborn ability.

ECONOMIC SYSTEMS AND ENTREPRENEURSHIP: An economic system is a framework within a countrys set up that facilitates the key economic decisions in a country e.g. the distribution of goods and services in a country. It therefore helps to answer five major economic questions: What to produce.
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Why produce. When to produce. How to produce. Who to produce to.

NOTE: The economic system in which an enterprise operates therefore determines the role and scope of its business, growth of the business and it reflects the fiscal and monetary policies of the concerned governments. The economic systems can be broadly divided into three groups: A) FREE ECONOMY/ CAPITALISM: This is an economic system whereby there is an absence of government interventions and where the forces of demand and supply are allowed to operate freely. An entrepreneur therefore enjoys considerable freedom in decision making. Such an economic system has the following characteristics: There is the ownership of private property. Freedom of choice and enterprise. There is self-interest. High level of competition. There is the price mechanism.

NOTE In such an economy, the entrepreneur has complete control over price and market mechanism by determining the following: How much to produce? Where to produce? Where and how to distribute? How to promote?

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 What should be the price?

Advantages of a free market system/ capitalism: It encourages consumer sovereigneity i.e. where consumers are able to freely exercise their power of choice. It makes entrepreneurs to respond quickly to changes in the international economic environment. This is because profit making firms are exposed to competition in the international market. Business firms have a greater incentive to bear risks since profit incentive exists. This encourages hard work and initiativeness. It may encourage foreign investment because the investors expect a higher return on their investments due to less or no government control. The efficiency of firm may increase since those firms that do not produce what consumers want at a low cost may go out of business. Firms are therefore encouraged to utilize resources efficiently.

Disadvantages of a free market system: It may give rise to monopolies as large scale producers obtain many economies of scale. A monopoly is a situation where there is only one supplier of a given commodity. Because the focus is on private costs and benefits, there is likelihood of the firms involved polluting the environment without control. Public goods and utilities may not be given much priority while they are very essential e.g. street lightning and defence. Such an economy systematically under provides for merit goods like health and education. Such services are socially desirable. It may generate considerable inequalities in income and wealth because the wages and salaries earned will depend on the forces of demand and supply.

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B) CENTRALLY PLANNED/ COMMAND ECONOMY: (Socialism). It is where the important economic resource allocation decisions are determined by the government through an economic planning body which implements the societys major economic goals. It has the following characteristics/ features: The allocation of resources is achieved by the use of an overall plan which sets production targets for different sectors of the economy. There is the rationing of certain commodities to facilitate fair use of existing scarce resources. Prices and wages are fixed by the government. Most or all economic resources are owned by the state.

Advantages: All essential goods and services such as education and health are provided by the state regardless of whether consumers can afford to pay for them. The wealth of the nation tends to be evenly distributed. The government is in a position to check the growth of monopoly power of private enterprises. It helps to reduce instances of pollution caused by companies where private investors are involved. Inflation can be controlled because prices are fixed by the government.

Disadvantages: High chances of resources being wasted because it is difficult for the state to assess consumer demand in advance. The cost of gathering information on what, how and for whom to produce is likely to be high requiring the expertise of professionals like statisticians, economists and planners. There is the absence of profit motive hence no incentive for innovation and hard work leading to inefficiency.
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It limits consumer sovereigneity since demand is manipulated to match the limited range of goods available on the market and the goods produced tend to be standardized. The absence of competition reduces efficiency since any loss which might arise.

NOTE: In such an economy, the entrepreneur plays no role because: All industries are owned by the state. The central government appoints experts to frame business policies, to plan for resources, to set up business units and to manage them. The enterprises are run for national interest or for social interest and not for profit motive.

C) MIXED ECONOMIC SYSTEM: It combines the features of a free market system with some degree of central control. Here, the allocation of resources between alternate uses is determined by the individual actions through the price mechanism but the authorities play some role in determining the aggregate level of output through the use of fiscal and monetary policies and influence the distribution of wealth.

THE CONCEPT OF SELF EMPLOYMENT Being self employed means that a person works for himself, but not for a third party or for a company. This means that, he is his own boss and uses his skills and abilities to make money and pay himself. It is an alternative that many people are going for considering that jobs are hard to come by these days and when they do, there is no guarantee that they will last. When thinking of going into self employment, there are factors that a person needs to put into consideration to determine whether they are fit for this type of employment. They include: Skills and abilities: One needs to start a job in that area that he can comfortably put his hands on and come out successfully.
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Awareness of the limitations that come with self employment. One of these is the fact that the person in this working arrangement is not assured of a regular in-flow of income. This means that, unlike the employed person, there are times you will have to go without a salary when things are not working out well. The other bad side is that you will need to make arrangements for your sick pay and pension as well. The type of business you may want to run in yourself employment strategy should be something you enjoy doing. Existence of enough of a push to move one from his present situation? People who move successfully into self employment have a degree of restlessness with their current situation. This is enough to motivate one to want to change and set up a business. The extent of eagerness, not only for the work one does but also for turning it into a business? If one is passionate about what he does hell find it simpler to ride the waves of change and keep going when starting. Existence of a clear vision for what one wants to gain both commercially and personally. How well one knows himself and the way to manage his energy and feelings? It helps one to remain motivated and energized. Whether one has a belief in himself i.e. the existence of confidence in ones own abilities. To move successfully into self-employment ones needs to believe in himself, capacity and ability to make things happen. Whether one has enough personal drive to keep going even when things get hard. Research shows that those who move successfully into self-employment are focused on always improving what they do and learning how things might be better; tough when it gets tough and personally driven to keep going at all points The financial position of an individual i.e. existence of plans in place to bring some form of a positive cash flow or earnings stream during the transition. This might be achieved through a variety of means e.g. Savings, redundancy payment, monetary support from a partner, part time job for example. Existence of a good support network. To make a success of self-employment you need a well-established network of contacts that may provide differing types of support at different times.

Advantages of self employment: Autonomy. One no longer works for a boss or for a company and is pretty much in charge of his own destiny. There is the freedom to work on our own without anyone breathing over our necks.
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As a self employed person, one can choose the working hours according to his convenience. So there will be no monotony of 9 to 5 business. We can be very well contented that we work for ourselves and our benefits but not for someone else. This attitude boosts up our energy and we can work efficiently. We can feel more responsible as whatever consequences we face, are due to our merits and demerits. We need not face any office politics which generally frustrates an employee. We can work with our full potential as there will be no one commenting that we are working for an increment or the favor of the boss. There are more home based projects which can be opted as self employment. Hence we will be free of the tension of routine commuting. We need not be scared of the environmental pollution as our need to travel decreases a lot. We need not give any explanation to any one when we are not able to work due to illness or any other reason. We can spend more time with our family members as we can plan the work schedule according to our preference. There will not be any performance reviews, deadlines, conferences and no more stressful conditions.

Disadvantages of self employment: One bears Personal responsibility for your own Training & Professional Development. One will need self-discipline and objectivity to identify his own training and development needs and the resolve to take time out from client work to execute his T&D plan One will be solely responsible for the work that he delivers and the advice that he give clients. One may face a personal legal liability if he makes a mistake or a client is not satisfied. There is a risk that one will sometimes be without chargeable work i.e. there is no money coming in for a period of time. One will need to manage his cash flow in a disciplined manner, maintaining cash reserves to cover any lean periods and ensure one has sufficient cash available to pay business expenses and tax bills.
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 One has to work hard. On becoming self employed, you ARE the business If you dont do it, it either doesnt get done OR it doesnt get done right. One find the opportunities, build and maintain the relationships, sell the work, deliver the work, handle the invoicing, pay the expenses, deal with the business administration etc Negative Impact on lifestyle and family life: At times one will have to make some tough decisions - - he may need to sacrifice some time with family and friends in order to deliver the project for a client. You may also need to work away from home for periods of time to meet the demands of client work. Uncertainty in income: There is the possibility is the possibility of low and uncertain earnings as compared to salaried employment. The need to perform routine duties. Salaried employment: Advantages: 1. Regular fixed income. 2. Need not bother about the business of the company. 3. Timely payment so we can plan our expenses. 4. Fixed holidays / leaves so that we can plan our holidays. 5. There is some prestige in the society on permanent jobs. 6. There is a minimal risk from the side of the employee because it is upon the employer to bear all the risks and ensure that the business is surviving.

Disadvantages: 1. One cannot plan for his holidays or family requirements on his own. Have to wait for boss permission. 2. Sometimes the reward is not appropriate to the level of work performance. 3. One cannot select his own working team. 4. Earnings cannot be increased more than actual rate. 5. The employer may not adequately recognize ones ability.

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6. There is no job security because one can be dismissed or demoted at the wish of the employer.

THE CONCEPT OF FAMILY BUSINES Strategies of succeeding in family businesses Adopting an effective communication system in the business: This helps to reduce disputes among family members. Set clear boundaries at the start of the business operation i.e. each family member needs to be assigned a specific role in the company, according to their individual skills and expertise.

ASSIGNMENT ONE (REVIEW QUESTIONS) QUESTION ONE John Odongo, a Tuk Tuk driver in Mombasa has experienced a major decline in the number of passengers and hence a drop in the performance of his business in the recent past. Required: a. Identify the possible reasons for this decline (6 marks) b. Explain the challenges that such businesses face in the major towns in Kenya (8 marks) c. What can the Government of your country do to ensure success of such businesses (6 marks) QUESTION TWO a. Identify six (6) differences between an entrepreneur and entrepreneurship (6 marks) b. The Vision 2030 is a strategic document for the countrys long term achievement. Explain its significance to the growth of entrepreneurship in Kenya (4 marks)
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c. Identify the major activities in the management of an enterprise (10 marks) QUESTION THREE a. Identify the reasons why you would advise the Government of your country to promote the growth of small and medium scale (SMEs) enterprises (8 marks) b. Explain the ways in which an entrepreneur can increase productivity in his business entity (6 marks). c. Analyze the challenges that are likely to be encountered by an entrepreneur in the initial stages of establishing a business. (6 marks).

QUESTION FOUR a. Using examples, explain the following forms of communication: i. ii. iii. Written communication (2 marks) Oral communication (2 marks) Audio-visual communication (2 marks)

b. Explain the significance of communication in a business enterprise (10 marks) c. Differentiate interpersonal and intrapersonal communication (4 marks)

TOPIC TWO: INTRODUCTION TO COMMUNICATION: Communication is the process by which information is transmitted between individuals and/ or organizations so that an understanding produces results. Its the transfer information from one person to another. Its the process by which people attempt to share meaning through the transmission of symbolic messages. It calls attention to three important points: That communication involves people and understanding communication involves trying to understand how people relate to each other.

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The communication involves shared meaning which suggests that in order for people to communicate they must agree on the definition and terms they are using. That communication is symbolic i.e. it involves the use of gestures, sound, letters, numbers, graphs and words. Its therefore a process by which meaning or thoughts are exchanged between individual through a mutually understood language or symbol.

The need for communication: To provide practical information. To give facts rather than impression. To clarify and condense information. To state precise responsibilities. To persuade others and offer recommendations.

ESSENTIALS OF A GOOD COMMUNICAITON: These are the components of a valid communication system and they include the following: The sender: He / she are the source from which communicated information is conveyed from. He/she initiates the communication. Message: - Its the content of the communicated information. It should be relevant and appropriate with regard to the occasion and the recipient. The communication channel: Its the medium through which the information is conveyed from the sender to the receiver e.g. telephone. The recipient / receiver: Its the destination of the conveyed information and one should ensure that he/she is dealing with the right recipient to avoid irrelevancy. It defines the message audience. Feedback mechanisms: Its the response by the recipient with regard to the conveyed information. Communication is only completed when feedback has been signaled. Encoder: Its the gadget/instrument used to make sure that what the sender want to communicate is put in an appropriate manner for communication e.g. writing. Decoder: Its a tool used to help the sent message make meaning to the sender i.e. its used to decipher the meaning of the message to the sender.

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Diagram (A): The process of communication:

THE SENDER

MESSAGE

MEDIUM

RECEIVER

FEEDBACK

Diagram (B): The Process of Communication:

Meaning to sender

encoder

transmitter

Message channel

Meaning to receiver Explanation:

decoder

receiver

The process begins when a message sender wants to communicate some fact, problem or any idea. The message makes meaning to the sender but cannot transmit it directly, this call for the need for an encoder to put the meaning in appropriate form such as words, symbols or in writing. The transmitter places the message into the message channel. The receiver then picks up the message and decoder translates the message so that it has meaning to the receiver. The receiver finally may or may not provide feedback to the sender

CHOOSING A MEANS OF COMMUNICAITON: Means of communication refers to the methods or modes of communication e.g. oral, written and audio-visual communication (ways of passing information). In choosing a suitable means of communication, the following factors must be considered:
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Cost: One should choose a means that is cost-effective i.e. one that does not involve wastage of funds without achievement of the intended objective. Confidentiality: Its the need to maintain the secrecy of information, whereby the individuals upholds the need for high secrecy in the message. Safety and security: an ideal means is one that ensures that the message reaches the intended destination safely e.g. the need to use registered mails for security. Urgency: One should choose a means of communication which ensures prompt and timely delivery of the information. Distance: For efficient delivery, any means chosen should ensure good delivery irrespective of the long destinations involved. Evidence / record: if there is need for future reference of information, the chosen means should have the provision e.g. written communication. Time factor: the mode of communication used depends on the hour and the time when the communication is taking place e.g. office telephone are ideal only during office hours.

FORMS OF COMMUNICAION: (A) ORAL COMMUNICATION: Its carried out through spoken word and it takes place primarily in a face to face situation and the use of telephones. It therefore includes face to face communication, conversation over the telephone, interviews, group discussions, meetings, conferences and seminars. Its the most preferred method of communication because of the following reasons: Helps the transmitter to determine instantly whether the receiver understands the message or not. Its safer. It allows for immediate feedback. It has personal touch. It saves time.
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Speech is a more powerful means of persuasion and control. With the help of variations in the tone, pitch and intensity of voice, the speaker can convey different types of meanings. Employees find the oral messages more reliable for they get an opportunity for feedback and clarification.

General limitations of oral communication: Oral communication is not possible if the communicator and the receiver are far removed from each other and no mechanical devices are available to connect them e.g. no network on mobile phones. Lengthy messages are not suitable for oral transmission, for there is likelihood of something of vital importance being missed. Oral messages cannot be retained for a long time. Oral messages do not have any legal validity unless they are tapped and made part of permanent records. There are inherently greater chances of misunderstanding.

Essentials of effective oral communication: Clear pronunciation: Words should be pronounced clearly and correctly. Oral messages are often misunderstood because the speaker does not talk distinctively. Brevity: People take pleasure in talking and so oral communication tends to suffer from overcommunication. It is important to keep the message as brief as possible without appearing abrupt and discourteous. Precision: There is the need to put the message in a manner that it can be understood with ease. This makes oral communication very effective. Conviction: Conviction comes from sincerity of approach and careful thinking and planning. Lack of conviction therefore causes lack of confidence, so that he is not able to impress the receiver with the message.

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Logical sequence: If the speaker has given proper thought to his message, he will be able to arrange the various ideas contained in it in their logical sequence. Jumbled ideas create confusion, while logically arranged ideas make the message forceful. Appropriate choice of words: Words have different meanings for different people and so it is important for the speaker to carefully choose his words. It is important to use words familiar to the listener rather than terms that are familiar to the speaker. Natural voice: Some speakers deliberately cultivate an affected style under the impression that it would make them look more sophisticated. The most effective speech is that which is correct and at the same time natural and unaffected.

Speaking skills in oral communication: In order for verbal communication to be effective the following skills are applicable: The speaker must have and develop listening skills so as to get the message. The speaker must adopt or embrace appealing gestures and facial expression. The listener should avoid pre-judgment The speaker must be open-minded so as to ensure that communication is fruitful. Dont assume that your listener has any prior knowledge about the subject. Select proper time. Be sure that neither you nor your listener is in a hurry. Organize your presentation so that they make sense to the receiver. Use simple, clear, concise and accurate language. Do not give any irrelevant or unimportant details. Carefully watch the expression on your listeners face in order to find out whether your message is getting through or not. - Allow opportunities to your listeners to ask questions. - Repeat complicated instructions. Note: Oral communication can either be face to face or telephone communication. Face to Face communication: It means passing a message orally by word of mouth whereby the parties involved are all present and in a reasonable proximity. It takes the form of group discussions, meetings and seminars. Advantages of face to face communication:
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 The parties involved can easily exhaust the subject matter. There is possibility of checking the facial expressions and gestures. There is ability and flexibility to use different languages Possibility of emphasizing on a point. Its cheaper Its possible to get feedback on the spot. Its particularly suitable for a discussion. Disadvantages: It may encourage laziness among people whereby people spend a lot of time discussing irrelevant issues. - It suffers language barrier where the parities do not share any common language. - Does not favour people in far distance. - It lacks evidence especially where no recording takes place - Does not favour people with disability to speak. - Its difficult to practice in large-sized organizations. Telephone Communication: Its the use of a telephone to convey messages. In order for telephone communication to be effective, the following precautions must apply. Before calling: - Choose the right time to call - Check and confirm the number - Plan the call to avoid irrelevancies During the call: - Be courteous so as to establish a rapport - Give the call the mood it deserves to drive the point home - Be chronological or sequential. - Speak very clearly and precisely. After the call: Place the receiver gently Make notes of the conversation if necessary Be sure that you have delivered all the details of the messages and that your message has been clearly and completely understood. How to use the telephone effectively: Speak politely, confidently, and in a positive and friendly. Have a message pad, pen, telephone directory and an appointment book near and at hand.
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While talking, hold the mouthpiece one inch away from the lips and the earpiece close to the ears. Avoid mumbling, running words together or talking through the nose or teeth. Avoid clichs like; yep, yeah, ah, oh e.t.c. Dont shout into the telephone. Dont speak too low. Try to be as natural as possible. In long distance calls, it is good to be loud, but shouting should be avoided at all costs. In telephone communication, time is the most vital factor. So do jot waste time in idle personal talk but at the same time, do not sound abrupt as well. Advantages of telephone communication: Its a symbol of prestige and this boosts the morale of the users It has the ability to relay messages very fast over long distances and this saves time and creates convenience. - They are operational throughout and therefore messages can be relayed anytime. - Its cheaper than face to face where distance is a factor - The speaker may have the chance to clarify the message over the phone. Disadvantages: Its expensive to buy, install and maintain telephones It may not be ideal for transmitting confidential information. In order for communication to take place, the parties involved must own telephones and this makes it expensive. - In most cases, there is no evidence of telephone conversations and this frustrates future reference - For office telephones, they do not favour communication during night time. - In a telephone conversation, the people communicating with each other have to depend entirely on their voices to convey the message because they cannot see each other. They cannot use facial expressions and gestures to establish rapport, to achieve emphasis and to create mutual understanding. TYPES OF LISTENING SKILLS: Here are some types of listening, starting with basic discrimination of sounds and ending in deep communication. Discriminative listening: Discriminative listening is the most basic type of listening, whereby the difference between difference sounds is identified. If you cannot hear differences, then you cannot make sense of the meaning that is expressed by such differences. We learn to discriminate between sounds within our own language early, and later are unable to discriminate between the phonemes of other languages. This is one reason why a person from -

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one country finds it difficult to speak another language perfectly, as they are unable distinguish the subtle sounds that are required in that language. Likewise, a person who cannot hear the subtleties of emotional variation in another person's voice will be less likely to be able to discern the emotions the other person is experiencing. Listening is a visual as well as auditory act, as we communicate much through body language. We thus also need to be able to discriminate between muscle and skeletal movements that signify different meanings. Comprehension listening The next step beyond discriminating between different sound and sights is to make sense of them. To comprehend the meaning requires first having a lexicon of words at our fingertips and also all rules of grammar and syntax by which we can understand what others are saying. The same is true, of course, for the visual components of communication, and an understanding of body language helps us understand what the other person is really meaning. In communication, some words are more important and some less so, and comprehension often benefits from extraction of key facts and items from a long spiel. Comprehension listening is also known as content listening, informative listening and full listening. Critical listening Critical listening is listening in order to evaluate and judge, forming opinion about what is being said. Judgment includes assessing strengths and weaknesses, agreement and approval. This form of listening requires significant real-time cognitive effort as the listener analyzes what is being said, relating it to existing knowledge and rules, whilst simultaneously listening to the ongoing words from the speaker. Biased listening Biased listening happens when the person hears only what they want to hear, typically misinterpreting what the other person says based on the stereotypes and other biases that they have. Such biased listening is often very evaluative in nature. Evaluative listening In evaluative listening, or critical listening, we make judgments about what the other person is saying. We seek to assess the truth of what is being said. We also judge what they say against our values, assessing them as good or bad, worthy or unworthy. Evaluative listening is particularly pertinent when the other person is trying to persuade us, perhaps to change our behavior and maybe even to change our beliefs. Within this, we also discriminate between subtleties of language and comprehend the inner meaning of what is said. Typically also we weigh up the pros and cons of an argument, determining whether it makes sense logically as well as whether it is helpful to us.
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Evaluative listening is also called critical, judgmental or interpretive listening. Appreciative listening In appreciative listening, we seek certain information which will appreciate, for example that which helps meet our needs and goals. We use appreciative listening when we are listening to good music, poetry or maybe even the stirring words of a great leader. Sympathetic listening In sympathetic listening we care about the other person and show this concern in the way we pay close attention and express our sorrow for their ills and happiness at their joys. Empathetic listening When we listen empathetically, we go beyond sympathy to seek a truer understand how others are feeling. This requires excellent discrimination and close attention to the nuances of emotional signals. When we are being truly empathetic, we actually feel what they are feeling. In order to get others to expose these deep parts of themselves to us, we also need to demonstrate our empathy in our demeanor towards them, asking sensitively and in a way that encourages self-disclosure. Therapeutic listening In therapeutic listening, the listener has a purpose of not only empathizing with the speaker but also to use this deep connection in order to help the speaker understand, change or develop in some way. This not only happens when you go to see a therapist but also in many social situations, where friends and family seek to both diagnose problems from listening and also to help the speaker cure themselves, perhaps by some cathartic process. This also happens in work situations, where managers, HR people, trainers and coaches seek to help employees learn and develop. Dialogic listening The word 'dialogue' stems from the Greek words 'dia', meaning 'through' and 'logos' meaning 'words'. Thus dialogic listening mean learning through conversation and an engaged interchange of ideas and information in which we actively seek to learn more about the person and how they think. Dialogic listening is sometimes known as 'relational listening'. Relationship listening Sometimes the most important factor in listening is in order to develop or sustain a relationship. This is why lovers talk for hours and attend closely to what each other has to say when the same words from someone else would seem to be rather boring. Relationship listening is also important in areas such as negotiation and sales, where it is helpful if the other person likes you and trusts you.
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Active Listening.

Active listening refers to a method of listening for the total meaning of a message. A sender's message has a verbal and a non verbal component as well as a feeling component. The receiver must be aware of both components in order to understand the full meaning of the message. The feeling component expresses the feelings the communicator is experiencing at the time of communication. These may be of joy, hate, resentment or anger and are contained in the way the words are expressed Very sweet words may be expressed in a way to convey a sour message. Advantages of effective listening: It helps to know the organization i.e. it helps to know what the members of the staff think about the companys policies and activities. It helps to make better policies i.e. if you listen to your subordinates carefully, you will know which policies are suitable for the organization. It helps to cool off complaining employees: Listening to employees patiently and sympathetically help their anger to subside. It is important for the success of the open-door policy: Managers who listen sympathetically encourage employees to talk leading to free upward communication. It helps to spot sensitive areas before they become explosive: This is achieved through regular meeting and listening of employees concerns. (B) WRITTEN COMMUNICATION: It is a way of communication whereby information is passed through documentation process by either printing or writing the information. It includes the use of letters, memos, agenda, circulars, reports, minutes, forms and questionnaires. Advantages of written communication: It serves as an evidence of communication which has taken place i.e. it can be repeatedly referred to. Its a permanent record i.e. older order and decisions can serve as precedents for fresh decisions. Its sometimes cheaper when a bulky message is to be sent as compared to telephone. Its a symbol of prestige because it caters for the interest of the elites and the literate in society. Its accurate and precise i.e. the very prospect of writing makes a person conscious. He gives a serious thought to his ideas and tries to organize them. Its possible to write in different languages. Disadvantages of written communication:
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It discriminates the illiterate Writing a letter or report is time consuming as compared to oral communication Its not possible to correct some errors on the spot after the letter has been sent. It does not preserve the principle of confidentiality because written messages can leak to unauthorized person very fast. It takes time before the message reaches the desired destination and therefore not suitable for urgent messages. Its costly due to the time involved in its preparation and other nominal expenses.

Types of written communication: 1) LETTTERS: Types of letters include: Personal letters: these are casual letters written from friends to friends. They concentrate on affection issues between the parties involved. Business letters: These are correspondences made to highlight the buying and selling process activities. They are used by businessmen to express their concerns and deliberate on business issues. Official letter: These include correspondences meant to address office matters e.g. letter of employment. It must be very precise and to the point. It must comply with the required rules of writing any official document Semi-personal letter: It contains both the characteristics of official and personal letter. Less formal language is used. QUALITY OF AGOOD LETTER: The information, grammar and spelling must be correct. The wordings of the letter should be simple to understand. The display of the letter should be pleasant. The letter should bear the correct address. It should be brief and to the point.

PARTS OF A BUSINESS / OFFICIAL LETTER: Letter head: The letter should be written on a document which bears the name of the company, the address, the telephone number, fax number, telegraphic address (a shortened name to be used on
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telegrams) and a description of the firms business. The name of the firm and its address are usually given at the top centre or top right side of the paper. The date: It should be written on the right hand of the page but below the address of the sender. It enables quick reference in future and helps in prompt action and orderly. The address of the addressee: It gives the name and address of the person or firm to whom the letter is being written (addressee). It makes a record on the carbon copy which serves to identify the letter for filling purposes. It also helps the outward clerk to write the same address on the cover. It should be written below the reference line, leaving some space. Salutation: Its the greeting part which commences the letter and precedes the message e.g. Dear Sir/Madam. Subject heading / reference: It states the subject of the letter and is of assistance when the letter is being filed. Its mostly used for business and official letters. It highlights the theme or the aim of the letter. It should be in bold or capital letters. Its usually written below the salutation, beginning from the place from where the first line of each paragraph starts, or it is placed in the middle of the line. Its useful to the correspondents at both ends for back reference, filling and sending replies.

The body of letter: It conveys the information or message to the addressee. Each message must be contained in its own paragraph. Opening paragraph. Main paragraph. Closing paragraph.
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The complimentary Clause: Its the closing of the letter and it should agree with the salutations. Its mostly written as yours faithfully for most business and official letter. Signature: It is the assent of the writer to the subject matter of the letter and is a practical necessity. It is usually hand-written and contains the writers name, status, departmental and firm. Its written directly under the complimentary clause. Enclosure: These are documents attached to a letter e.g. catalogues, price lists or other leaflets. The word Enc is typed at the foot of the page at the left hand side to indicate to the receiver that the letter he is receiving is a companied with certain documents. Essentials of effective written communication: They include: Clarity Completeness. Conciseness. Consideration. Courtesy. Correctness. 2) REPORTS: Reports are formal communications that are usually intended to initiate a decision or action by the person or group receiving the report. This formal communication can be oral or written. The main purpose of reports is to keep management up-to-date with relevant developments within and outside the organization so that they can make decisions based on accurate facts, expert advice and well-considered opinion. Reports may therefore be used to: Summarize investigations into causes and effects of problems or trends and to recommend solutions e.g. the reason for all in sales. Provide statistical or financial summaries e.g. monthly sales report. Record decisions made at a meeting.
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Supply information for legal purposes e.g. accident reports. Monitor progress e.g. in building work, in implementing a new scheme. Look into the feasibility of introducing new procedures, making new products and changing machines. NOTE: The ultimate purpose of any report is to provide the foundation for decisions to be made and action taken. The function of a new report its thus to present facts and perhaps make a recommendation. The report has to give the person to whom it is presented sufficient information to enable him to take suitable action. There is an obligation on the part of the report writer to communicate information in an unbiased way. The writer knows more about the subject matter of the report than the reader and therefore he should present the information impartially. Comparison between oral and written reports: An oral report can be denied at any time but a written report is a permanent record which cannot be easily denied. An oral report tends to be vague. It may be have some irrelevant facts while some significant ones may have been overlooked. In a written report, the writer tries to be accurate and precise. A written report can change hands without any danger of distortion during transmission. A written report can be referred to again and again. CHARACTERISTICS OF A GOOD REPORT: 1. Precision: In a good report, the writer should be very clear about the exact purpose of writing it. His investigations, analysis and recommendations should be directed by this central purpose. 2. Accuracy of facts: Since reports lead to decision- making, inaccurate facts may lead to disastrous decisions. It is the need to confirm that all statements are accurate and source of information authenticated. 3. Relevance: The facts presented in a report should not be only accurate but relevant as well. Irrelevant facts make a report confusing i.e. exclusion of relevant facts renders it incomplete and likely to mislead. 4. Reader-orientation: While drafting a report, the writer should keep in mind the persons who are going to read the report.
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5. Objectivity of recommendations: Recommendations should come as logical conclusion to investigations and analysis. They must therefore not reveal any self-interest on the part of the writer. 6. Simple and unambiguous language: A good report should be free from various forms of poetic aspects like figures of speech. 7. Clarity: This depends on proper arrangement of facts. The report writer must proceed systematically making his purpose clear by defining his sources, stating his findings and finally making necessary recommendations. 8. Brevity: A good report should be brief. This should not be achieved at the cost of clarity. It should also not be at the cost of completeness. 9. Grammatical accuracy: The report should be free from grammatical errors and the need to avoid vocabulary that is too abstract. Avoid any meaningless phrases introduced. TYPES AND CLASSIFICATION OF REPORTS: Reports can be classified as follows: I. On the basis of legal formalities to complied with: Here reports can be classified as follows: Formal reports: A report which is prepared in a prescribed form and is presented according to an established procedure to a prescribed authority. Informal reports: They are in the form of a person-to-person communication. It may range from a short almost fragmented statement of facts on a single page to a more developed presentation taking several pages. NOTE: The formal reports can be further classified as follows: Statutory reports: They are reports prepared and presented according to the form and procedure laid down by law e.g. reports submitted by the Director and Secretary of a company as required by the companys act. Non-statutory reports: They are formal reports which are not required under any law but which are prepared to help the management in framing policies or taking other important decisions. Some are prepared regularly as part of the routine procedure of business. On the basis of the number of persons entrusted with the drafting of a report :
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II.

Here, reports can be identified as follows: Reports by individuals: These may be reports from the various heads of departments, the company secretary and the auditor. They are related to the work in their departments e.g. the sales manager may be required to submit a report on the declining sales and the means to improve them. Reports by committee or sub-committees: These are reports that do not concern only one department or they are so important that they associate more than one person. They are written after a careful and cautious deliberation of the members. They are formal in style and impersonal in tone. They may be signed by the members of the committee or by the chairman and the secretary.

III. On the basis of the nature of reports: Periodic or Routine reports: They are prepared and presented at regular, prescribed intervals in the usual routine of business. They may be submitted annually, semi-annually, quarterly, monthly or weekly. They present a chronological record or events e.g. reports of directors to the AGM. NOTE: The main purpose of this report is to represent a correct and coherent picture of the working of the firm or the department concerned during the period covered by the report. It may cover the following details: a. A brief summary of the important events of the period under review in their chronological order. b. A brief summary of the turnover. c. A brief account of production. d. Financial statements showing relevant details. e. A reference to the condition of the plant, machinery and equipment if desireable. f. A reference to the important changes in the administration. g. A comparative study of the current period along with relevant previous periods. Progress reports: They are meant to describe and assess progress made during a particular period. They present an account of the work already done, work in progress with other relevant facts and details of the work yet to be completed. Details covered may include:
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a. A brief introduction to the nature of the project being covered by the report. b. A brief account of the work completed in an earlier period. c. An account of the work in progress during the period under review and assessment of the work done during this period. d. An account of any special problems that had to be faced and the solutions of those problems. e. Important aspects of the work yet to be completed. Examination reports: They are specially commissioned to cover important aspects or events. They are prepared after thorough investigation i.e. old files are studied, personal interviews are held, questionnaires are circulated among people, surveys are conducted, relevant literature is studied, the important facts are compiled and analyzed and certain conclusions arrived at.

Recommendation reports: Unlike examination reports, they must end with specific recommendations. here, the data is analyzed in such a manner that the analysis leads to the recommendations being made at the end. Statistical reports: They are largely made up of financial data, mathematical charts and tabular columns of figures. They are introduced into other type of reports to elaborate facts and facilitate recommendations. IMPORTANT POINTS TO CONSIDER BEFORE WRITING A REPORT: a) The type of report requested or expected. b) The time allowed to prepare the report: This can give valuable guidance on the type of report expected e.g. an informal report highlighting some important aspect of the problem may be acceptable if the time is short while a formal report needs time. c) The purpose of the report e.g. if the writer has been asked to prepare a report on whether his company should set up a new branch that involves considerable initial expenditure, it is of importance and they need a carefully written report. d) What is to be examined: Such an awareness will eliminate much redundant labour and it will help in the inclusion of all that is important to the problems solution and make the report document. e) The nature of facts to be furnished i.e. the writer must be clear about the facts to be included. f) The audience or recipient of the report: The writer should be reader-oriented by including facts relevant to the reader. STEPS TO BE FOLLOWED WHEN PREPARING A REPORT: Step one: Investigating the sources of information:
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This involves identifying both primary and secondary sources of information. The extent of investigation will depend on the length and importance of the report. Major sources of information are company files, personal observation, interviews, letters, questionnaire, library research or data stored in the computer. Step two: Taking notes: Its done during the course of investigations. Here, the writer keeps on taking notes of anything that appears to be related to the subject and tries to develop a coherent approach.

PARTS OF A FORMAL REPORT: Final presentation of the formal report includes three major sections: Prefatory parts such as the letter of transmittal, the title page, table of contents and an executive summary; The body, which includes an introduction, discussion of findings, and summary, conclusions and recommendations. Supplementary parts such as the works cited, a bibliography and the appendix.

They can be discussed as follows:

Letter of transmittal:

It is the letter or memo authorizing the report. It should be given serious consideration. The letter should: 1. Deliver the report (Here is the report requested by) 2. Present an overview of the report 3. Offer to meet to discuss the contents

Title page

It contains the title of the report, name of addressee or recipient, author's name and company, date and sometimes a report number.

Executive summary
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An abridged version of the whole report, written in non-technical terms; very short and informative; normally describes salient features of report, draws a main conclusion, and makes a recommendation; always written last, after remainder of report has been written.

Table of contents

Shows contents and arrangement of report; always includes a list of appendices and, sometimes, a list of illustrations.

Introduction

Prepares reader for discussion to come; indicates purpose and scope of report, and provides background information so that reader can read discussion intelligently. The introduction should motivate the reader. The reader should understand why the problem was researched and why the study represents a contribution to existing knowledge. Guffey and Nagle (2003) suggest the introduction contains seven items: 1. 2. Explanation of how the report originated and why it was authorized. Description of the problem that prompted the report and the specific research questions to be answered. Purpose of the report. Scope (boundaries) and limitations or restrictions of the research. Sources and methods of collecting information. Summary of findings, if the report is written deductively. Preview of the major sections of the report to follow, thus providing coherence and transition for the reader.

3. 4. 5. 6. 7.

The introductory paragraph is usually followed by a review of the literature, often given the heading Background. The literature review serves at least the following purposes in the presentation of the report:

1.

Placing the research in a historical context to show familiarity with relevant developments. 2. Distinguishing what has been done from what needs to be done.

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3.

Showing how your research builds on prior knowledge by presenting and evaluating what is already known about your research topic. Offering a point of reference for interpreting your own findings. Your report will show how your study expands, revises, or improves knowledge in an area.

4.

The goal of the literature review is to demonstrate the logical continuity between previous and present work (APA, 1994, p. 11).

Discussion of findings

A narrative that provides all the details, evidence and data needed by the reader to understand what the author was trying to do, what he or she actually did and found out and what he or she thinks should be done next. Formal reports often use visual aids to emphasize, summarize or clarify information. Some general guidelines apply to the use of visuals: visuals must have meaningful titles and headings; visuals must be identified and discussed in the text; they must be located close to their reference in the text; they should be vertical on the page; and the source must be credited if appropriate. Using graphics software packages can create professional-looking visuals.

Conclusions

A summary of the major conclusions or milestones reached in the discussion; conclusions are only opinions so can never advocate action.

Recommendations

If the discussion and conclusions suggest that specific action needs to be taken, the recommendations state categorically what must be done.

References

A list of reference documents which were used to conduct the project and which the author considers will be useful to the reader; contains sufficient information for the reader to correctly identify and order the documents. Although many methods of documenting reports are currently in practice (Guffey & Nagle, 2003) we will discuss only one: the APA method. The American Psychological Association

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(APA) recommends in-text citations that refer readers to a list of all references cited in the report. CONVEYING WRITTEN MESSAGES: The three basic means of conveying written messages include: Messenger services Transmitters e.g. teleprinters, telegraphs, facsimile and e-mails Postal services

POSTAL SERVICES: Ordinary post: here, letters are written, stamp is fixed and sent. It may be surface or air mail. Registered mail: here, letters and parcels are registered at a fee for safety. The mails may be insured against damage or loss. Express mail: here, extra attention at an additional fee is given to ensure faster deliver. Speed post: here, letters are normally delivered on the same day when posted. Its at an additional fee. Poste restante: It means post remaining. Its provided to travelers who are supposed to stay in a specific town for a few days only and they do not have their post box in that town. Such people inform their friends and business associates to send letters to a particular post office and the addressee can collect his mail from that post office upon production of his identification. Business reply services: Its used by businessmen whereby a business enterprise applies to the post office for the service. The special envelopes written postage paid is used to facilitate faster response from the customer. Remittance services by post office: These are services that facilitate money transfer from one person to another. By cheque Postal order Ordinary money order Telegraphic money order Posta pay services.

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C) AUDIO VISUAL COMMUNICATION: It is a combination of sight and sound i.e. it makes use of telecasts, short films on the cinema screen, video tapes and digital video disc. It combines the auditory and the visual i.e. while people are observing something on the television or cinema screen, they are also hearing narratives or descriptive remarks so that what they see is adequately supplemented and there is a more abiding impression on their mind. Visual communication refers to the presentation of information by use of diagrams and pictures without the use of words e.g. the use of charts, photographs, films and posters. When words are involved, it is called audio-visual e.g. ambulance siren. Visual communication involves the use of organizational charts, photographs, graphs, posters and wall charts. How to make audio-visual communication effective: Pictures, slides and films should be: Imaginatively produced; cartoon strips are usually found to be very interesting. If the pictures are colourful, blending and harmonizing of colours should be done. The lay out should be attractive. Descriptions and narrations should be: Brief but adequate. The language should be precise and easily understandable. Advantages of audio-visual communication: Some graphs or pictures have an attractive or strong effect to the viewers and therefore viewers get the message instantly. - The equipment used are very distinct in relaying the message e.g. sirens. - Equipment used can be displayed in public places and this relays the message to a wider cross section of people. Disadvantages of audio-visual communication: It disadvantages the physically disadvantaged e.g. the blind Some devices used are technical in nature and therefore they will not be easily understood by some people. Transmission sometimes requires expensive facilities or equipment. -

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THE IMPORTANCE OF COMMUNICAITON IN AN ORGANISATION. Effective communication takes place when the intended message is received accurately and correct feedback is given or right action taken. Effective communication is important to organizations because of the following reasons: It provides the information needs for any action or decision to be taken by managers and subordinates. It enables managers to get the information needed for planning activities e.g. SWOT analysis provides information required for strategic planning. In organizing communication enables managers to effectively coordinate organizations activities by communicating goals and objectives i.e. clarifying duties and responsibilities to subordinates. Through effective information, the management is able to evaluate the effectiveness of existing structure and designs. Directing through leadership and motivation requires effective communication. Effective leaders must motivate and encourage commitment to organizational objectives through effective communication. Written and oral communication is essential part of controlling e.g. feedback reports received and oral instructions provided by supervisors to subordinates. Communication permits the expressions of feelings and satisfaction of social needs.

GENERAL PRINCIPLES OF EFFECTIVE COMMUNICATION: Clarity of ideas: the communicator should be quite clear about what he wants to communicate i.e. effective generation of ideas to be communicated. This requires clarity of thought and expression. It requires: - Use of simple words. - Use of concrete expressions. - Avoidance of jargons. - The sender to avoid ambiguity. - The use of short sentences. Purpose of communication: Communication should be directed towards the objective of getting behavioral response from the receiver.

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Empathy in communication (consideration): effective communication should be sensitive towards the receivers needs, feelings and perceptions i.e. projecting oneself into the view point of the other person. This avoids many misunderstandings. In a letter this can be done through: Adoption of you-attitude. When you write letters to others, they are effective and readers respond to them well only when they are from their point of view. Emphasize positive and pleasant facts. In a business letter, the reader accepts calmly all the NOs, regrets and sorrys if they are expressed in a positi9ve manner. Impart integrity to the message: it is the observance of ethical principles- sincerity and fair treatment. Two way communication: This brings two minds together which is the basic core of any communication. This enhances the need for continuous dialogue between the sender and receiver. Appropriateness of language: language used for communication should be such which is understandable by the receiver. Supporting words with action: while communicating the sender ma use the actions to emphasize a pint. Credibility in communication: communication must have credibility e.g. the subordinates obey the order of the superior because he has demonstrated through his competence that he is worthy for trust. Good listening: a good communicator must be a good listener. Completeness: one should organize his message in such a way that the receiver is not in doubt about anything contained in it. The following aspects should be taken into consideration: While answering a letter, make sure that you have answered all the questions. Check for the five W-who, what, where, when and why. E.g. while announcing a meeting, specify when the meeting is to be held, where it is to be held, why it is being held, what is to be discussed in the meeting, who is to attend the meeting and may be how members are expected to reach the venue. Conciseness: Be as brief as possible. Brevity in expression effectively wins the attention of the reader. The following rules will help you to achieve conciseness in communication: Include only relevant facts. Avoid repetition. Avoid wordy expressions. Organize your message well. Courtesy: it demands a considerate and friendly behavior towards others. The following principles help to promote courtesy:
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Answer the letters promptly. Omit irritating expressions. Apologize sincerely for an omission and thank generously for a favour. Correctness: this requires that you give correct facts, send the message at the correct time and send the message in the correct style.

CLASSIFICATION OF COMMUNICATION:

INTERNAL COMMUNICATION: Its the exchange of information or messages between persons and departments of the same organizations e.g. communication between the employer and employees or among the employees. Good internal communication is essential to an organization in the following ways: It improves the understanding between the employer and employees i.e. when complaints of staff are communicated to the employers in time and in the right way, then the chances of any misunderstanding becomes minimum. It enables management to instruct the supervisors and subordinate staff about any change of policy this increases efficiency in the work processes. The employees can co-ordinate more effectively in the presence of good communication system e.g. incase of an increase in sales the marketing department can inform production department to increase its production When there is a problem in a department proper communication system enables the employees to inform the management about any breakdown of machinery or other shortages. Management can also take action in time and avoid any possible losses.

EXTERNAL COMMUNICATION: Its whereby the organization receives information from the external sources such as suppliers, customers and the general public. Its the exchange of information or messages between a particular organization or office and outside and organization. It includes communication with customers and suppliers, other business organizations, government departments and service institutions.
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The following facts explains its importance: It creates good reputation of the organization because any communication from the company will cement the relationship between the customers and the company. It improves public relations because members of public will develop more interest with the company as a result of communication. It also serves as an advertisement tool of the companys products to the general public. Due to good communication, a company can attract more customers and it can therefore increase the sale of its products. A company can get information about the likes and dislikes of its customers. It facilitates correspondence with government departments such as foreign trade offices, income tax and VAT offices. Some areas like personnel, public relations, marketing and labour relations need communication to facilitate job requirements.

INTERPERSOANL COMMUNCATION: This is a communicational process that involves a few people and the parties are in close physical proximity to each other. It occurs between people who have known each other for some time.

INTRAPERSONAL COMMUNCIATION: Its the active involvement of an individual in symbolic processing or messages. Heres the individual becomes his or her own sender and receiver providing feedback to him in the mind of an individual in a model which contains a sender, receiver and a feedback loop. It encompasses the following: Day-dreaming Speaking aloud e.g. talking to oneself and reading aloud Writing Making gestures while thinking Interpreting non-verbal communication.

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METHODS OF COMMUNICATION FLOW IN ORGANISATIONS; DOWNWARD COMMUNICATION: It involves sending messages from top positions to lower level positions e.g. sending information from top management to mid level management and finally to subordinates. Its used for such purposes like giving instructions, providing information about policies and procedures and giving feedback about performance and motivation. It involves the use of memos, group meetings, telephone, manuals for policies and procedures and handbooks. Main objectives of downward communication: To give specific directives about the job being entrusted to a subordinate. To explain policies and organizational procedures. To praise the subordinates of their performance. To give the subordinates information about the rational aspects of their jobs so that they understand the significance of their jobs in relation with the organizational goal.

Limitations of downward communications: Possibilities of under-communication or over-communication. A superior may either talk too little or too much about a job. - Chances of delay: the lines of communication in downward communication being very long makes transmitting of information a time consuming exercise. - Loss of information: unless the communication is fully written, it is not likely to be transmitted downwards in its entirety. - Possibilities of distortion: whenever a piece of information passes on from one individual to another, it losses a little of its authentically. - Chances of build-in resistance: downward communication smacks too much authoritarianism. Essentials of effective downward communication: Managers should keep themselves well informed of the objectives, activities and achievements of their organizations. Managers must work according to a communication plan. They must decide before hand how much information is to be communicated and at what time. There should not be over-concentration of authority at the highest level. The information must be passed on to the correct person in the hierarchy. -

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UPWARD COMMUNICATION: Involves communication from sources of lower level position to receivers in relatively higher level position. - Its often used to give information of achievement or progress, to point out problems which are encountered and to provide information on work activities. - It adopts methods such as suggestion systems and grievances. Importance of upwards communication: Providing feedback: it provides the management with necessary feedback. The management is also to ascertain whether the directives issued to the lower staff have been properly understood and followed. Constructive suggestions: employees can offer constructive suggestions to promote the welfare of the organization. Easier introduction of new schemes: since the employees feel themselves to be party to the decision making, it helps the organization to introduce new schemes without unduly forcing the employees. Greater harmony and cohesion: it makes the atmosphere in the company congenial and creates greater harmony and cohesion between management and the employees. Methods of upward communication: Open-door policy. Complaints and suggestions boxes. Social gatherings. Direct correspondence. Reports. Counseling. -

Limitations of upward communication: Employees are usually reluctant to initiate upward communication. Employees often feel they communicate their problems to their superiors, it may adversely reflect on their own efficiency. It is often more prone to distortion. Sometimes in the process of upward communication, workers become too bold, ignore their immediate superiors and directly approach the top most authorities with their suggestions and complaints.

HORIZONTAL/ LATERAL COMMUNICATION: It takes place among individuals or groups at the same organizational level.
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Its used to coordinate activities, to persuade others at the same organizations and to pas on information about activities or feelings. - It takes the form of workers communicating with other workers, clerks exchanging information with one another and supervisors holding a coffee- break session to discuss some organizational problems. Methods of horizontal communication: Through grapevine. Through consensus. Note: Grapevine communication refers to where information flows informally among employees. BARRIERS TO EFFECTIVE COMMUNICATION: Lack of planning of what is to be communicated. This means incomplete content of the message, poor organization and lack of coherence. This may lead to improper message conveyance or irrelevancy during the communication process. Semantic distortion: It occurs when the meaning of a message by the sender differs from meaning to the receiver due to the use of technical jargons involving terminologies or language not appropriate to the profession or group. Deliberate misrepresentation of information e.g. deliberate lies. Information retention: information is a valuable resource and those who control it are in a position of power, some may therefore retain some important information leading to communication problems. Perceptual factors e.g. hallo effect which may lead individuals to be biased in evaluation of messages from the sender. Poor listening by the receiver. Expecting to hear what we know i.e. past experience leads individual s to expect to hear the same message in similar circumstances and dissimilarity of the message may cause individuals to ignore the message. Individuals will therefore ignore information that conflict with what they know. Noise in the physical environment e.g. loud music. Physical impairness i.e. deafness, blindness and dumbness will hinder effective communication. Complex organizational structure; the more complex the organizational design and the more complex the relationship, the longer the communication lines and greater the distance between the lower and higher levels in the organizational hierarchy. This tends to restrict communication flow and distort it. Behavioural barriers: this means the behaviour of individuals or groups towards each other or towards the management. This involves clash of personalities between
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individuals, lack of co-operation between staff and departments, strikes and stoppages resulting from poor personnel relationships.

DEALING WITH COMMUNICATION BARRIERS / IMPROVING COMMUNICAITON IN THE ORGANISATION. Senders of message should clarify in their minds what they want to communicate. I.e. purpose of communication should be made clear. The use of feedback should be encouraged i.e. the more complex the information to be communicated, the more essential it is to use feedback. Managers should follow up their communication in order to get the right feedback. Encoding and decoding should be done with symbols that are familiar to the sender and receiver of the message. When planning communication, other people should be consulted to provide relevant data for the message to be communicated. Correct amount of redundancy should be used i.e. if a message is important or complicated its often necessary to repeat it in several different ways in order to ensure that the receiver will understand it. Unnecessary redundancy should however be avoided in written communication. The speakers should e sensitive to the needs of receivers i.e. individuals differ in their values, needs and expectations and empathy with those differences will improve the speakers understanding and make it easier to communicate with them. Inconsistent non verbal signals should be avoided. Organizational structure should be made straight forward and the communication lines kept simple, clear and direct. Creating a climate of trust and confidence throughout the organization. This removes relationship barriers and it encourages the organization members to share information with others. The medium and methods of communication should be well chosen to suit particular communication needs. The equipment and mechanical device to be used should be carefully selected and well-maintained to prevent breakdowns.

INTRODUCTION TO ENTREPRENEURSHIP TOPIC: EMERGING ISSUES IN ENTREPRENEURSHIP:

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The business environment Globalization Ethics in business Business outsourcing Business and social responsibility Compiled by: Mr. Collince Gworo (A) ANALYSIS OF BUSINESS ENVIRONMENT: Business organizations exist and operate within the text of external environment that presents opportunities and threats of their continued existence and growth. They also exist in an internal environment which the management can control. A business environment is therefore the activities, processes and elements that affects the decisions that a businessman makes. It therefore encompasses all the factors that may affect the ability of an enterprise to achieve its objectives arising internally or externally. Types of Environment: 1. Internal environment This environment is within the control of management of the enterprise. 2. External Environment It is not within the control of management i.e. such affects all businesses similarly from an external perspective. INTERNAL ENVIRONMENT Organizational policies: Policies, rules and procedures which are predetermined plans which place limits on what an organization can or cannot do. Organizational Culture: Organizational culture may be constraining to the growth of a business organization. A culture of doing things in a particular way only will mean that the business activities are pre-determined. Top Management Style: The style of top management in an organization may be a constraint to good working relations. Policies, procedures as mentioned above are normally developed by high level managers. They place restrictions on what lower-level managers may want to do. Limited Resources : Due to insufficient resources an organization may be unable to improve their production capacity, hire the best qualified personnel, purchase best equipment or land.

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EXTERNAL ENVIRONMENT: The external environment of an enterprise consists of those factors that are outside the control of the manager (external to it) but which nevertheless affect managerial decision-making. The external forces generally affect all enterprises within that society so they are not specific to any one organization. They include the following factors: a) Social and Cultural environment: The business operates within a social framework that consist of value systems, sociodemographic trends and other basic characteristics of people comprising the society e.g. attitudes, desires, expectations, levels of education, beliefs, religion, traditions, habits and customs of people in the society. Attitudes of society towards pollution, environmental friendliness and safety and gender issues have all affected decisions made by business managers. Businessmen should therefore monitor social and cultural forces and adapt principles that commit their organizations to actions defined by society e.g. Cultural changes in tastes and fashion can have a damaging effect on organizations that fail to anticipate the changes e.g. in clothing industry. b) Legal environment: It is concerned with how an organization does business. Business managers face a multitude of laws that limit their various decision making powers. It covers the following areas: Law of contract i.e. validity of contract. Sale of goods Act selling practices. Health and safety legislation for example adhering to an Act that governs health and safety at the workplace. It covers the working condition and the preventive measures that an employer should put in place. Employment Act: How an organization treats its employees. Legislation on competitive behavior. Law of Tort covering negligence and management liability. Environmental legislation: Pollution control such as waste management. Companys Act in Kenya Cap 486 Tax Act.

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c) The economic environment The current state of the economy can affect how a company performs e.g. the rate of growth in the economy is a measure of the overall change in demand for goods and services. Economic variables under consideration include: Inflation rate. Balance of trade and exchange rates. Level of unemployment interest rates and availability of credit. Government subsidies. The extent of protectionist measures e.g. tariffs. Freedom of capital movement Economic agreement in various trading blocs such as the EAU and COMESA. Examples: (i) A downturn in the economy can lead to corporate failures across a number of sectors. The worst hit is suppliers of goods with high income elasticity demand. (ii) High interest rates, restrictions on money supply expansion and revaluation of currency can adversely affect a business. This is because they influence demand for goods both domestically and internationally, cost of capital and the level of profitability which in turn affects dividends and retained earnings level. d) Political environment: The organization must react to the attitude of the government. The organization must react to the new attitude of the government of the day. The government is the nations largest consumer, employer and investor and any changes in the spending priorities will have a significant impact on a business. Political influence will include legislation on trading pricing, dividends, tax, employment, privatization, development of free market influences and unemployment. Economic forecasts are normally prepared on the basis that the existing government policies continue. Other factors are political stability in a country, which will influence the rate of investment in the country. e) Technological environment: Technology is the sum total of the knowledge regarding ways of doing things, inventions and techniques in areas of processes, machines and tools. This is a rapidly changing area and organizations should be very careful with it. It can influence the following:62

Changes in production techniques e.g. the use of robots and Computer Aided Manufacture. Products that are made or sold e.g. software. How services are provided e.g. ATMS for banks. How to identify markets and creation of customer databases.

f) Ecological factors: The current concern about environmental conservation and the maintenance of the balance in the ecosystem forces the businesses to make decisions that will refrain the enterprise from environmentally-harmful activities. It involves the need to observe pollution-free zones in the production process. g) Physical factors: It refers to the influence from climatic and weather conditions. Weather conditions could influence the activities of airlines and construction firms. Business managers in the aviation and construction firms must therefore make appropriate decisions taking into account the prevailing and the expected weather and climatic changes. h) International forces: It affects those organizations doing business in other countries e.g. multinational firms. Management in these organizations must learn to operate in an environment where many rules of doing business are very different from those that exist in their home countries e.g. Taxation laws. Policies regarding disposal and environmental friendliness. Regulations on standards and quality of output. (B) BUSINESS ETHICS The term ethics comes from the Greek word ethos meaning character, guiding principles and beliefs, standards. Today ethics is a study of moral behavior or conduct. Terms such as business ethics, corporate ethics, medical ethics, legal ethics etc are used to indicate the particular area of application.

Business ethics are standards and principles that guide the action and decision of business managers and determine if their actions are good or bad. A code of business ethics therefore means a set of established rules of moral behavior expected of business persons in a business
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situation. Any kind of dishonesty is considered unethical and immoral by society and therefore any business person who is dishonest with shareholders or partners, customers, employees, top authorities, local authorities, competitors or community is unethical and immoral person. A business firm that recalls a defective or harmful product from the market is an ethical organization and will gain goodwill from customers.

Sources of Business Ethics: Business ethics are from three main sources i.e. religion, laws and culture. 1. Religion: Religion is considered as one of the oldest source of ethics. Despite the presence of many different religions and different doctrinal practices and beliefs, major religions converge on the beliefs that ethics is an expression of divine will that reveal the nature of right and wrong in business and all other social practices. 2. Law: Laws are rules of conduct that are enacted by legislature. The purpose of law is to guide human behavior in society. Laws codify ethical expectations and change. Businesses are expected to obey the laws of a country for them to be considered ethical in their practices. 3. Culture: Culture refers to a set of values, rules and standards transmitted among generations and are aimed at shaping behaviors of each community to that such behaviors are within acceptable limits. 4. Peers and colleagues of a businessman They are likely to influence his views on what is wrong and right. 5. 6. 7. 8. Professional codes of conduct Past experience Situational factors Individual values and goals

Benefits of Ethics to Business: Ethics develops trust: Ethical managers are predictable, reliable and trustworthy. Ethics limits regulations: Laws either in the form of legislation, regulation or judicial decision is a reaction to unethical actions.

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Ethics reveals poor Management: Unethical practices are an early warning signs of poor management. Ethics proved a clearer vision: Ethical managers have a clear vision and therefore able to formulate better objectives.

Core Stakeholders of the business and Their Rights: Customers: 1. A right to a fair price 2. A right to information required to make a sound buying decision. 3. A right to a product or service consistent with reasonable expectations 4. A right to products that are reasonably safe when used as intended 5. A right to products or services adequate to needs. Employees: 1. A right to fair compensation 2. A right to a safe working environment 3. A right to information relevant to job performance and security. 4. a right to training 5. a right to candid and fair evaluation 6. A right to reasonable freedom in doing the job 7. A right to reasonable privacy 8. A right to loyalty 9. A right to fairness in termination 10. A right to flexibility (illness, family emergency) 11. A right to job stability and security. Investors: 1. A right to competent management aimed at producing a reasonable return on investment. 2. A right to vote on certain decisions. 3. A right to (declared) dividends 4. A right to residual assets 5. Aright to sell shares. Creditors: 1. A right to timely payment. 2. A right to competent management aimed at avoiding unnecessary risk 3. A right to adequate information (disclosure) Suppliers: 1. A right to loyalty.
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2. A right to an opportunity to bid or to adjust prices. 3. A right to preference over competitors. 4. A right to timely advice of changes. Communities 1. A right to support for the common good: 2. A right to a safe and clean environment. 3. A right to decisions and actions that do not unnecessarily disrupt the community. 4. A right to efficient and effective use of resources (privatization). Competitors: 1. A right to compete. 2. A right to expect activities that do not unfairly distort the market. 3. A right to honest statements 4. A right to honest pricing. NOTE: The need to uphold such rights is the ethical obligation for a businessman.

CODE OF BUSINESS ETHICS: A code is a statement of policies, rules or principles that guide behavior. They guide the behavior of all the persons in an organization. Business ethics is the code of conduct which businessmen should follow while conducting their normal business activities. Business ethics is nothing but application of ethics in business management. Features of business ethics: Based on moral and social values. Facilitates protection of social groups e.g. consumers, shareholders and employees. Provides basic framework within which business is to be conducted. Needs willing acceptance for enforcement i.e. it must be accepted as self-discipline by businessmen. Education and guidance is required for enforcement

Why business ethics is needed: i. ii. Checking business malpractices i.e. it is needed to make business activities fair to consumers. Improving consumer confidence i.e. it is needed in order to improve the confidence of consumers as regards quality, price and reliability.

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iii. iv. v. vi. vii. viii. ix. x. xi.

It makes businessmen conscious of their social responsibility e.g. their duties towards consumers and other social groups. Business ethics is needed for the protection of rights of consumers and to raise social welfare. It helps to develop cordial and friendly relationship between business and society. It helps to create good image of businessmen in the society and to avoid public critism. It helps the company to define accepted and acceptable behaviours which makes it easy to trade with the company in question. It helps to promote high standards of practice and this makes a company to be competitive in its products and services. Code of business ethics provide a benchmark for members to use for self evaluation. The company is able to establish a framework for professional behavior and responsibilities. Transparency is enhanced in the dealings of the organization.

Measures that management should take to improve the ethical behavior of employees: 1. The use of a code of conduct which is established rules of behavior expected of employees. 2. The use of ethics committee to handle issues regarding moral obligations of employees. 3. Institute ethics training programmes to help instill the knowledge regarding ethics to employees. 4. Top management should support and recognize ethical behavior e.g. by awarding well behaved employees at the year end. 5. The company should encourage employees to report unethical behavior (whistle blowing) 6. Punish tresspassers in a meaningful way and make it public so that it may deter others. 7. Employees should be well remunerated to ensure that they do not engage in activities that are corruption-oriented. 8. Encourage team building where employees would be expected to air their views as related to the problems they face in the organization. 9. Ensure that issues relating to recruitment are handled in a fair manner so that the staffs recruited are competent and qualified. 10. Controls relating to the procedures of the company should be well documented so that employees know what they are expected to do. 11. Role modeling by managers 12. Moral decisions should built upon past behaviour for fairness to be seen 13. There should be open communication and discussion on ethics.

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Principles of good business ethics: (code of business ethics): Avoid exploitation of consumers. Avoid profiteering i.e. do not resort to hoarding and sale of harmful goods. Encourage healthy competition. Ensure accuracy in weighing, packaging and quality. Regular tax payment. Proper accounts keeping i.e. maintain accurate business records, accounts and make them available to all authorized persons and authorities. Fair treatment of employees. Keep shareholders informed. Avoid bribes. Fulfill customer expectations. Respect consumer rights. Accept social responsibility.

(C) SOCIAL RESPONSIBILITY It is the obligation that business has in helping to promote the welfare of the society. It means the extent to which an organization should be involved in social issues that are of importance to community in general. The involvement of the business can be in the following areas: Cleaning existing pollutants and avoiding activities that pollute. Sponsoring needy students in the society. Contributing to complete local projects in the society. Sponsoring youth events e.g. soccer teams. Conducting civic education to enhance civic awareness. Creating funds to deal with some diseases. Forest conservation. Raising awareness regarding some diseases such as breast cancer.

ARGUMENTS FOR SOCIAL RESPONSIBILITY/ JUSTIFICATIONS The following are the arguments that have been advanced in favour of social responsibility: Moral obligation/justification: A business is viewed as ethical if it is socially responsible. Social-cultural norms of society require business to assume social responsibility. Better use of surplus Resources:
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Businesses have huge resources in terms of financial expertise, manpower and talent. They can use these resources for growth and expansion of business and also for giving better life and welfare to different social groups. Resources should be used for the benefit of the corporation as well as the society.

Long term self-interest of the business: In the long run no business can survive and grow unless it enjoys a good image in the public. Public image of the firm can be improved by serving social interests. Enlightened businessmen realize that it is in their self-interest to fulfill the aspirations of the society. By providing good education, environment and opportunities, business can create for itself better employees, customers and neighbours.

Ensuring law and order: Law alone cannot ensure an orderly legal environment in a country. People who feel that they are not getting their due share from business may resort to anti-social activities which are harmful to business. The doctrine of social responsibilities helps to prevent the occurrence of problems which tend to threaten the very survival of business system.

Maintenance of free enterprise: Voluntary assumptions of responsibilities by businesses are essential to avoid public regulation and to maintain the viability of the business system. If businessmen voluntarily discharge their social obligations, the need for government regulation is avoided. Government control is costly to business and it reduces the flexibility of decision making and freedom of action.

Creation of society: Business does not exist in a vacuum. It is part of the society and it survives to meet the demands of the society. Society provides the necessary facilities for the establishment and operation of business concerns and therefore it should be responsive to social demands. The right of business to exist and grow carries an obligation to serve the society.

Profitable opportunities: Businesses have little chance of success in a society which is plagued with enormous problems. Businesses can meet challenges by converting the problems into profitable opportunities. Being a socially responsible company, the business enjoys a wider market among the customers and goodwill among the investors.

System interdependence: Business systems and social dependence are closely interrelated. They affect each other e.g. goods and services supplied by business determine the standard of living of the people. If
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businesses do not supply goods of proper quality and at fair prices, society will stop or restrict the flow of inputs into business. Therefore the business must be responsive to societys needs and expectations.

ARGUMENTS AGAINST SOCIAL RESPONSIBILITY

Need for Profit Maximization The main purpose of business is to make profits and therefore responsibilities would dilute profit maximization.

Lack of Social skills Business managers are professional oriented to economic activities and do not have social workers skills i.e. businessmen do not posses the sensitivity, insight and experience required to solve social problems.

Lack of Accountability. Involvement of business in social affairs would enhance the already high power of business in society. With huge financial resources at their command, businessmen may dominate major institutions like religious, educational, political and government. The business may in the process enforce its own value system to the disadvantage of the society without being accountable.

Burden on consumers: Social responsibilities like pollution control are very costly and require huge capital investment. Most of the businessmen would like to pass the cost to consumers in the form of higher prices of the commodities.

Lack of yardstick: Profit is the yardstick against which the performance of the business can be evaluated. When a businessman moves away from the simple rule of profit maximization that guides his judgment, he has no guide for efficient decision making.

Social Responsibility of Business Towards different Stakeholders: Social responsibility of a business is a set of obligations a business has to its stakeholders. Stakeholders are all those people or parties a business interacts with. Some of the stakeholders and the business social responsibility include:
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1. 2. 3. 4. 5.

To Shareholders/Owners Pay dividends Increase shareholders earnings Safeguard shareholders interests Provide accurate, complete and reliable information. To employee or Workers: Employment conditions and welfare Rewarding equitably. Protecting employees health. Equity and justice in promotion. Opportunity for personal development. To Consumers: Provide quality goods and services Give goods in proper quantity Being fair in prices Offering after sale service Responding to consumer complaints Maintenance of continuous supply. To Suppliers: Equity and justice in tendering system Paying suppliers in good time Fostering good relations To community: Supporting community projects such as schools, cultural activities, health and transport. Employment of minorities and handicapped members of society. Protecting the environment. 6. To the Government Complying with state laws and regulations and directives Paying taxes when due as any good citizen Not to indulge in hoarding of goods or creating artificial shortages Practicing fair trade. 7. To the competitors: Encourage free, open and healthy competition. Guidelines for effective enforcement of social responsibility:

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 Requirements of well-planned programmes: every company should think clearly and plan the programmes accordingly. This adds meaning and purpose to social responsibility activities of the enterprise. Manageable programmes: considering finance, manpower, expertise, skills and other facilities available, the company should take up social responsibility which can be managed properly. Attention to long-term benefits: a company should not undertake programmes at the expense of its survival, stability and growth. Link with social groups: the concerned social group towards whom the responsibility is discharged should be taken into consideration. Relevance to local needs: the programmes of social responsibility selected for implementation should be relevant to social needs of the local community. This ensures support and co-operation of the local people. (D) BUSINESS OUTSOURCING Business process outsourcing involves the contracting of the operations and responsibilities of specific business functions (or processes) to a third-party service provider. Outsourcing is commonly known as sending work to an outside provider in order to cut costs. Advantages/ Reasons for Business Process Outsourcing

Cost savings: The lowering of the overall cost of the service to the business. This will involve reducing the scope, defining quality levels, re-pricing, re-negotiation, and cost restructuring. Focus on Core Business: Resources are focused on developing the core business. For example often organizations outsource their IT support to specialized IT services companies. Cost restructuring: Outsourcing changes the balance of this ratio by offering a move from fixed to variable cost and also by making variable costs more predictable. Improve quality: Achieve a steep change in quality through contracting out the service with a new service level agreement. Knowledge: There is access to intellectual property and wider experience and knowledge. Contract: Services will be provided to a legally binding contract with financial penalties and legal redress. This is not the case with internal services. Operational expertise: Access to operational best practice that would be too difficult or time consuming to develop in-house.
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Access to talent: Access to a larger talent pool and a sustainable source of skills, in particular in science and engineering. Catalyst for change: An organization can use an outsourcing agreement as a catalyst for major step change that cannot be achieved alone. The outsourcer becomes a Change agent in the process. Enhance capacity for innovation: Companies increasingly use external knowledge service providers to supplement limited in-house capacity for product innovation. Reduce time to market: The acceleration of the development or production of a product through the additional capability brought by the supplier. Risk management: An approach to risk management for some types of risks is to partner with an outsourcer who is better able to provide the mitigation. Venture Capital: Some countries match government funds venture capital with private venture capital for start-ups that start businesses in their country. Scalability: The outsourced company will usually be prepared to manage a temporary or permanent increase or decrease in production. Creating leisure time: Individuals may wish to outsource their work in order to optimize their work-leisure balance

Disadvantages of outsourcing May create suspicion amongst the existing employees who can offer the same services It may be expensive in the short run mostly when the company has to do away with an inhouse department. Outsourced expert services may not have the familiarity and experience to handle the needed issues. The business may loose its secrets to competitors. Outsourced services may require increased controls by business management. This may increase the cost of operations. Performing of outsourced services is on the basis of a contract. This implies that such persons may not be flexible to accept additional tasks.

E) GLOBALIZATION

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It is the integration of markets, nations, states and technologies in a way that is enabling individuals, corporations and nation states to reach around the world further, faster, deeper and cheaper than ever before. It is the economic interdependence of the world economies as a result of development in science and technology. It has brought the global village phenomena i.e. information passes easily through the internet from one continent to another in real time. It has made it easy for companies to access inputs from adverse sources. Significance/ advantages of globalization Goods and people are transported with more easiness and speed The possibility of war between the developed countries decreases Free trade between countries increases Global mass media connects all the people in the world As the cultural barriers reduce, the global village dream becomes more realistic The interdependence of the nation-states increases As the liquidity of capital increases, developed countries can invest in developing ones The flexibility of corporations to operate across borders increases The communication between the individuals and corporations in the world increases Environmental protection in developed countries increases

Effects of globalization Enhancement in the information flow between geographically remote locations The global common market has a freedom of exchange of goods and capital There is a broad access to a range of goods for consumers and companies Worldwide production markets emerge Free circulation of people of different nations leads to social benefits Global environmental problems like cross-boundary pollution, over fishing on oceans, climate changes are solved by discussions International criminal courts and international justice movements are launched The standards applied globally like patents, copyright laws and world trade agreements increase Corporate, national and sub national borrowers have a better access to external finance Worldwide financial markets emerge International travel and tourism increases Enhancement in worldwide fads and pop culture
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Local consumer products are exported to other countries Cross-cultural contacts grow and cultural diffusion takes place There is an increase in the desire to use foreign ideas and products, adopt new practices and technologies and be a part of world culture Free trade zones are formed having less or no tariffs Due to development of containerization for ocean shipping, the transportation costs are reduced Subsidies for local businesses decrease Increased competition forces companies to lower prices. This benefits the end consumers. Increased media coverage draws the attention of the world to human right violations. This leads to improvement in human rights.

The negative effects of globalization

Developed nations have outsourced manufacturing and white collar jobs. That means less jobs for their people. This has happened because manufacturing work is outsourced to developing nations like China where the cost of manufacturing goods and wages are lower. Programmers, editors, scientists and accountants have lost their jobs due to outsourcing to cheaper locations like India. Globalization has led to exploitation of labor. Prisoners and child workers are used to work in inhumane conditions. Safety standards are ignored to produce cheap goods. Job insecurity. Earlier people had stable, permanent jobs. Now people live in constant dread of losing their jobs to competition. Increased job competition has led to reduction in wages and consequently lower standards of living. Terrorists have access to sophisticated weapons enhancing their ability to inflict damage. Terrorists use the Internet for communicating among themselves. Companies have set up industries causing pollution in countries with poor regulation of pollution. The benefits of globalization is not universal. The rich are getting richer and the poor are becoming poorer. Bad apects of foreign cultures are affecting the local cultures through TV and the Internet. Deadly diseases like HIV/AIDS are being spread by travellers to the remotest corners of the globe. Local industries are being taken over by foreign multinationals.
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The increase in prices has reduced the governments ability to sustain social welfare schemes in developed countries. There is increase in human trafficking. Multinational Companies and corporations which were previously restricted to commercial activities are increasingly influencing political decisions.

ENTREPRENEURSHIP STUDIES: (JUNE DEC. 2010): ENTREPRENEURIAL CREATIVITY AND INNOVATION: Entrepreneurs blend imaginative and creative thinking with a systematic logical process which is key to their success. - Potential entrepreneurs are always looking for unique opportunities to fulfill needs or wants i.e. they develop an ability to see, recognize and create opportunity where others find only problems. - The whole entrepreneurship process requires creativity and innovation. This encompasses aspects such as management, leadership, business policy, motivation, communication, promotion, product development, financing and customer service. Definition: The concept of creativity; Creativity is the generation of ideas that result in the improved efficiency or effectiveness of a system. It means bringing something new or the generation of a new idea. It is the concept of generating ideas, formulas or patterns as well as discovering the existence of opportunities and resources that involve the process of conceptualization, logic exhibition and reasoning. -

NB Creativity enables entrepreneurs to find new and better ways of accomplishing their objectives. In the age of tough competition, resource scarcity, high labour and equipment cost, anything that leads to more efficiency and effective operation increases individual enterprises chances of survival and success. Creativity therefore enables entrepreneurs to recognize change and be creative to take advantage of those changes.

The creativity process:

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This is a process that can be developed and improved because everyone is creative to some degree. The creative process involves seeing relationship among things others have not seen and it goes through the following stages /phases

Phase 1:Background or knowledge Accumulation (problem sensing / recognition): Here the entrepreneur selects a problem or becomes aware that a problem exist and a need for change or dissatisfaction with the present state of affairs must also be recognized. It means investigation and information gathering which involves extensive reading, conversations with others, working in the field, attendance at professional meetings and workshops and a general absorption of information relative to the problem under consideration. It provides an individual with a variety of perspectives on the problem and it is important to the entrepreneur who needs a basic understanding of all aspects of the development of a new products, service or business venture.

Phase II: Immersion: Here the individual entrepreneur concentrates on the problem then becomes immersed in it recalling and collecting information that seems relevant. It also involves drawing up hypothesis without evaluating them.

Phase III: The incubation process: During this stage the mind is not consciously focused on the problem and the individual may be asleep, relaxed or reflective. After assembling the valuable information the individual relaxes and lets his subconscious mind to through the material. Creative individuals allow their subconscious mind to mull over the tremendous amounts of information they gather during the preparation phase. It occurs when the individuals are engaged in activities totally unrelated to the subject mater or the problem. Getting away from a problem and letting the subconscious mind work on it allows creativity to spring forth. Some of the most helpful steps to induce incubation include: Engage in routine mindless activities e.g. cutting the grass or painting a house.
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Exercise regularly. Play sports, board games and puzzles. Think about the project or problem before failing a sleep. Sit back and relax on a regular basis.

Phase IV: The Idea Experience (Insight): Its the discovery stage. Often when least expected e.g. while eating, falling a sleep or walking, the new integrative idea will flash into the individual mind and such innovations must be recorded in the course of other activities. In most cases the answer comes to an individual incrementally i.e. slowly but surely, the person begins to formulate the solution. The idea experience can be sped up in the following ways: Day dream and fantasize about your project. Practice your hobbies. Work in a leisurely environment. Keep on note book at bedside and record late-night or early morning ideas. Take breaks while working. Phase v: Evaluation and Implementation: Its also called verification. Here the individual sets out to prove by logic or experiment that the idea can solve the problem and that it can be implemented. - It requires a great deal of courage, self discipline and perseverance. - Successful entrepreneurs can identify ideas that are workable and that they have the skills to implement and they should not give up when they run into temporary obstacles. - It involves the re-making of ideas to put them into final form. DEVELOPING YOUR CREATIVITY: To improve your own creative talents, beware of the habits and mental blocks that stifle and challenge creativity. - Ones individual development becomes more effective if he regularly practice exercises designed to improve his creative abilities. - Developing creativity there calls for: (i) Recognizing relationships: - Inventors should see new and different relationships among object, processes, materials, technologies and people.
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It involves perceiving in a relational mode which is developed by viewing things and people as existing in a complementary with other things and people.

(ii) Developing a functional perspective: - A creative person tends to view things and people in terms of how they can satisfy his or her needs and help complete a project. - It calls for the need to visualize yourself in a complementary relationship to the things and people of the world and you must learn to look at them in terms of how they complement you in your attempts to satisfy your own needs and to complete you projects. Eliminating Muddling mind sets: (i) Muddling mindsets are mental habits that block or impede creative thinking. Studies of adults show that only 2 10% of creativity potentiality is put into use. The muddling mindsets include: Either /or thinking: Due to the speed of change in the modern world, a great deal of uncertainty and ambiguity exist. People cannot be creative due to the strive for unreasonable amount of certainty in their lives. Creative persons learn to accept a reasonable amount of ambiguity in his or her work and life.

(ii) Security hunting: - Many people try to make the right decision or take the correct action every time. - This makes them rely on averages, stereotypes and probability theory to minimize their risks. - An innovator must take same calculated risks and these risks can sometimes result in the innovator being wrong and making mistakes. - By recognizing his part of the innovative games, the creative person learns from his or her mistakes and moves to create bigger and better things. (iii) Stereotyping: - Although averages and stereotypes are abstractions that people fabricate, people act and make decision based on them as if these were data entities existing in the real world. - People must alter their thinking to enhance their creativity because only new pattern of thinking will lead to new ideas and innovations. (iv) Probability thinking: - In their struggle to achieve security; many people also tend to rely on probability theory to make decisions. - An overreliance on this can however distort reality and prohibit one from taking calculated risks decisions.
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NB: i)

The following problem solving exercise are designed to help eliminate muddling mindsets:

Practice taking small risk in your personal life and of works relying on your intuition and hunches. ii) Go out of your way to talk to people who you think conform to a commonly accepted stereotype. iii) When an idea is presented to you first think of all positive aspects of the idea then of all the negative aspects and finally of all interesting aspects of the idea. iv) When listening to people, suspend initial judgment of them, their idea and their answer, simply listen. (v) When making some decisions in the present, do not let your personal history or your estimates abound the future dominants your decisions making process. Area where People are creative: i) ii) People often do not recognize when they are being creative and they frequently overlook opportunities to be creative. William Miller a researcher in creativity suggests that the path to creativity begin by first recognizing all of the ways in which we are or can be creative. People in organization can channel their creativity in the following different areas:Idea creativity: -thinking up a new idea or concept e.g. an idea for a new product or way to solve a problem. Organization creativity:-organizing people or projects and coming with a new organizational form or approach to structuring things e.g. Starting a new type of venture. Relationship creativity:-Innovation approach to win win relationship with others e.g. a person who handles a difficult situation well. Events Creativity: - Producing events such as an award ceremony, team outing or annual meeting. Inner Creativity: - Changing ones inner self i.e. being open to new approaches and thinking about ourselves in different ways. Spontaneous Creativity: - Acting in a spontaneous or spur of the moment manner such as coming up with a witty response in a meeting, an off the act speech, a quick and a simple way to settle a dispute or an innovative appeal when trying to close sale.

iii) iv) v) vi)

The creative climate: (Establishing / fostering a climate for creativity) Creativity is most likely to occur when the business climate is right.

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An effective technique of managing creativity in an enterprise is therefore by establishing a suitable climate for creativity through the following methods:I. Develop on acceptance for change. - Enterprise members must believe that change will benefit them and the enterprises as a whole. - This must be facilitated by management. II. Encourage new ideas by welcoming new approaches. - Enterprise managers must make it clear in words and deed that they welcome new ideas and they must there be willing to listen to employees and others suggestions. III. Permit more Interactions. - Give enterprise members the opportunity to interact with the members of their own and other working areas. - Such interactions encourage the exchange of useful information, the free flow of ideas and fresh perspective on problems. IV. Tolerate failure: - Many ideas may prove impractical or useless but managers must allow the investment of time and other services in experimenting with new ideas so that their possibility of being viable can be analyzed. - It also encourages individual members to generate many other ideas. V. Provide clear objectives and freedom to achieve them: Enterprise members must have a purpose and direction for their activity i.e. supplying guidelines and reasonable constraints will also give managers control over the amount of time and money invested in creative behavior. VI. Recognition & reward system: Creative individual can be motivated to work hard on tasks that interest them and by offering recognition in such tangible forms as bonus and salary increases, the enterprise managers will demonstrate that creative behaviors are of value to the organizations.

NB: Some of the important characteristics of a creative climate therefore include:A trustful management that does not over control the personnel. Open channels of communication among all business members. Considerable contact and communication with outsiders. A large variety of personality types. A willingness to accept changes. An enjoyment in experimenting with new ideas. Little fear of negative consequences for employees making mistake. The selection and promotion of employees on the basis of merit.

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The use of techniques that encourage ideas including suggestion systems and brain storming. Managing creativity: Creativity can be managed through: i) Employee empowerment: This promotes independence that gives freedom to employees to exploit and experiment on specific ideas on their own.

ii) Decentralizing tasks: This facilitates the following: Specialization that ensures employees work in fields in which they have sufficient knowledge. This increases their confidence and at the same time enables employees to refine their skills as well as discover talents. Increased democratic space to allow employees participate in decision making. Increased accountability and responsibility that ensures employees solve problems by themselves instead of waiting for a higher authority.

iii) Minimizing bureaucracy: Having many unnecessary approval stages in processing discourages employees due to cumbersome authorization processes before starting a project.

iv) Risk management: This requires a policy that facilitates the following: Insurance. Covering risk associated with creativity hence minimize the impact. Compensation procedures.

v) Reward scheme: This means recognizing efforts made by individual members by: Investing in research and training infrastructure. Ensuring access to information.
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Providing a conducive working environment that focuses on job design, discipline, rules and regulations, working standards, safety and security. Providing assurance which includes job security. Managing the transition process. Providing incentives that include rewards and prizes.

THE CONCEPT OF INNOVATION: Innovation is the process by which entrepreneurship convert opportunities into marketable ideas i.e. a means by which they become catalysts for change. It is a process that involves idea selection and development through harnessing creative energy in order to convert ideas, patterns and formulas into more efficient products or processes by re inventing, redesigning, simplifying or revolution processes. Peter F. Ducker noted that innovation is the specific function of entrepreneurship i.e. a means by which the entrepreneurs either creates new wealth producing recourse for or endorse existing resources with enhanced potential for creating wealth. It is a combination of the vision to create a good idea and the perseverance.

The process of Innovation: Innovation can be undertaken in the following stages:(i) Leadership and Cultural Change stages:It involves creating a leadership role that encourages the creativity of people. This is achieved through developing clearly described targets and effective investment process. The managers must identify performance and reward system towards creativity exhibited by the members.

(ii) Innovation zone (ideation): This is the encouragement of idea generation from within the organization. It involves the facilitation of the collection of all ideas into an online deposits system to facilitate access, consultation and the sharing of different ideas. It involves generation of mature ideas and the exercising of entrepreneurial skills.

(iii)

Market intelligence analysis:

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This involves identifying ideas from the external market environment i.e. the analysis of external environmental variables particularly regarding competitors strategies and their activities. It involves the gathering of the market research information necessary to enable an organization to offer something different from the external environment.

(iv) Project development stage: This involves the developing ideas that have potentiality with respect to business activities to be undertaken. It involves activities of commercializing new products and investing into new business opportunities

(v) Funding and implementing stage: It involves the preparation of prospectus or other business documentations. Here, measures are put in place to ascertain the probable return on investment regarding the business project undertaken.

(vi) Monitoring Stage: Here the organization will identify tested, cost saving measures or operational improvement and distribute the tested ideas for the implementation. It also involves monitoring implemented activities.

Types of Innovation: Invention: It is the creation of a new product services or process. e.g. Wright brothers airfare

Extension: Its the expansion of product; service or process already in existence Such concepts make a different application of a current idea e.g.

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Duplication: Its the replication of an already existing product. Duplication of effort is not simply copying but adding the entrepreneurs own creative touch to beat the competition.

Synthesis: Its the combination of existing concepts and factors into a new foundation. It involves taking new ideas, those already invented and finding a way so that together they find application.

NOTE: Innovation can also be classified as follows: a) Product innovation: This includes design features, ingredients, patterns and formulae that support concepts such as branding and unique selling proposition. When designing a product; quality, consistency and predictability are vital to determine the strength of the product. b) Process innovation: It involves factors such as: Stages of processing which can be determined by the technology used. Supply chain management and intermediaries which consist of distribution logistics, procurement process, warehousing and sales force management. Business process engineering that consists of concepts such as simplification, reliability of systems, ICT, redesigning and revolution. Benchmarking based on the standards, procedures, rules, regulations and organization structures. Total quality management that includes process control, branding, monitoring, evaluation, certification and quality assurance. Functional improvement founded on the existing processing structures. For example, transporting during rainy seasons may cost more than during dry seasons..

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c) Position innovation: Here, strategies are developed to focus on concepts such as: Market share. Brand loyalty. Product image. Acceptance. Identity and uniqueness. The strategies include the following: Competitive advantage whose goals are to display the outstanding features of a product that make it to be preferred among similar group of products. Differentiation which brings understanding and clarity on what exactly the firm wants to sell. Branding that strengthens identity, association, loyalty and visibility. Market fragmentation that simplifies the market. Paradigm shift: Here, an entrepreneur can decide to totally change the business model and take a completely new direction. This will sometimes involve change of the vision. It will then affect the mission and policies of the firm. The business can take such an aggressive and ambitious initiative because of the following reasons: Obsolescence. Stiff competition. Market saturation. New opportunities or change of trends.

Sources of Innovation: a) Unexpected occurrences: These are successes and failures that because they were unanticipated or unplanned, often end up proving to be a major innovative surprise to the firm. b) Incongruities: These occur whenever a gap or difference exists between expectations and reality. c) Process needs: These exist whenever a demand arises for the entrepreneur to innovate and answer a particular need, e.g. the creation of health needs such as sugar- free foods. d) Industry and market changes:
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Continual shift in the market place occur caused by development e.g. consumer attitudes, advancement in technology and industrial growth. Industrial and market are always undergoing changes in structures; design or definition and the entrepreneur therefore needs to be aware of and seize these emerging opportunities. e) Demographic changes: They arise from trend changes in population, age, education, occupation geographic location and other factors. Demographic shifts provide new entrepreneurial opportunities.

f) Perceptual changes: These are the basic for the creation or development of something brand new i.e. inventions. They are the products of new thinking, new methods and new knowledge. They are intangible yet meaningful since ideas to take place e.g. the current fitness craze caused by the perceived need to be healthy and physically fit has seen healthy foods and health facilities grow throughout the country.

Principles of innovation

(i) Be action oriented; Innovators must always be active and searching for new ideas; opportunities or sources of innovation.

(ii)

Make the product, process or services simple and understandable i.e. people must readily understand how the innovation works.

(iii) Make the products; process or services customer based. Innovators must not attempt a project or development on a large scale and develop allowing for planned growth and proper expansion in the right manners and at the right time.

(iv) Aim high Innovators should aim high for success by seeking a mode in the market place

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(v) Try, test and revise: This rule helps to work out any flows in the products process of service.

(vi) Learn from failures: Innovation does not guarantee success and failures often give rise to innovations.

(vii) Follow a milestone schedule: Every innovation should follow a schedule that indicates milestone accomplishments. Although the project may run a head or behind schedule but in order to plan and evaluate the project.

(viii) Reward innovation activity: Innovation activity should be rewarded and given the proper amount of respects. This means tolerating and to a limited degree accepting failures as a means of accomplishing innovations.

(ix) Work, work and work: It takes work and not genius or mystery to innovate successfully.

Types of innovators: a) Gatekeepers: These people collect and channel information about changes in the technical environment. They stay current with events and ideas through personal contacts, professional meetings and new media. When they find relevant information, they send it to the appropriate person or unit for follow up.

b) Idea generators: They analyze information about new technologies, products or procedures in order to yield a new idea for the company. The fresh idea may be an innovative solution to existing problems in product or business development.

c) Champions:

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They advocate and push for the new idea. This involves obtaining and applying the resources and staff to demonstrate the idea feasibility. They are concerned about results not risk and do not spend time studying the consequences of failure. Their mission is to remove obstacles.

d) Project Managers: They co-ordinate labourers, equipment and other resources and monitor progress against the plan. They administer the tasks, people and physical resources to make and idea to practice.

e) Coaches They address technical and interpersonal process for the work in invention process. They provide technical training related to new development and help people work together to turn an idea into a tangible result.

Differences between creativity and innovation:

CREATIVITY

INNOVATION

Involves discovering the existence of Involves utilizing the opportunities generated opportunities. from creativity by increasing efficiency or effectiveness.

Idea generation.

Idea selection, development, coordination and implementation.

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Originality.

Building on existing concepts.

Exploration, adventure of non- Revolution, automation, rationalization of existing or undiscovered resources. procedures and business process reengineering

Way of thinking perception.

shaped

by Implementing the thoughts.

Bring forth, conceive, and generate Conversion of ideas, patterns and formulae patterns, ideas and formulae. into new products.

CPA SECTION ONE: ENTREPRENEURSHIP STUDIES: TOPIC ONE: BUSINESS INCUBATION: It is estimated that 70% of all businesses fail at infant stages due to poor management, inadequate capital and lack of proper planning. This led to the formation of business incubation association of Kenya (BIAK) that offers expertise services, training, networking and skills development to help entrepreneurs to succeed in their activities. Business incubators are programs designed to accelerate the successful development of entrepreneurial companies through an array of business support resources and services, developed and orchestrated by incubator management and offered both in the incubator and through its network of contacts.
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They are therefore programmes designed to accelerate the successful development of enterprise through business support, resources and services. Business incubation is also a process whereby the infant enterprises are assisted to deal with problems arising at such stages to enhance their maturity. Successful completion of a business incubation program increases the likelihood that a start-up company will stay in business for the long term. Historically, 87% of incubator graduates stay in business. The primary goal of a business incubator is to produce successful businesses that are able to operate independently and are financially viable.

What is Business Incubation A Business Incubator is a facility designed to assist businesses to become established and profitable during their incubation period. Incubatees come from individuals interested in promoting an innovative idea that they have so that it becomes a business, yet they may have no skills in business. Consequently they need to learn more to change the concept into business. The second category of incubatees may be people who have clear documented business concepts based on an innovative idea they already have but which again may not be converted into business due to resource constraints. They could also be businesses that are already set up and running but need to be boosted to grow. Each one of them needs a different approach to convert them into vibrant business outfits. The figure above describes the approaches that can be used to implement incubation. What Services Do Incubator Provide? Will Powers incubation programme ensures that an individual seeking to start or promote the growth of their enterprise has easy access to the knowledge, experience in management, and financial resources. Invariably business incubators will provide a variety of resources or resourcefulness which may include the following:

shared premises business advice business services networking

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mentoring a full time manager Why an Incubatee Needs WillPower The incubation period for an individual business is normally one to three years. Our management, and board of directors, invests time and money in a feasibility studies to lay the groundwork for a successful incubation programme. Africa needs many business incubators, we need others to come on board and support this focus of business development. For you to set up an incubator, you will need to conduct an effective feasibility study, which will help determine whether the proposed project has all the factors crucial to an incubators success which include:

A solid market A sound financial base Strong community support and A policy support perspective to attract government linkage. What Is Expected Of An Incubator? Once established, business incubator must commit to industry best practices in:

Structuring for financial sustainability Recruiting and appropriately compensating management with company-growing skills Building an effective board of directors, and Prioritizing managements time to place the greatest emphasis on local support Whom To Incubate An incubator should be an institution that has the advisory support services that can promote others to grow. They must therefore be well versed with the governing corporate law, a talented and experienced board of directors which should apply rigorous selection processes to incubatees. They must ensure that only those with a viable business propositions are accepted for incubation expected to last 2-3 years. As described in the diagram in the previous page the incubatees may be:

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Trainees in a business development programme whose innovative ideas attract the financing eye of the incubating institution Individuals with innovative ideas and a supporting business concept and an accompanying business plan, or Businesses that have gone through the start up phase but now need support to reach proliferation but lack the know-how or financial resources The level of entry and the effort required to make incubatees rise to sustainable institutions determines the equity premium that the incubator would levy for the incubation effort. Depending on an organization the incubator could take 5-15% stake in return for an incubation period tenancy which could be 1-3 years and the support services received from the incubation. This equity requirement acts as a filtering mechanism by determining that entrepreneurs wanting to enter the incubator growth programme understand that ultimately, they probably will have to give up equity in order to raise capital. The moral of this equity expectation is to enable the incubator attain financial sustainability and hence reduce dependence on external funding from either donors or government. What Is Expected Of The Parties To The Incubation? It is necessary to establish that the seeding stage or startup venture incubatees have the passion to pursue their dream. In the seeding/startup programme, the incubatees prepare business plans to demonstrate that their products (conceptual or real) are marketable. The incubator on the other hand develops a range of support materials and toolkits to help the incubation process. After about three months at the incubator, it becomes apparent whether the incubatees are ready to proceed. Where technology is the focus of the incubator, a technologically innovative product or service capable of underpinning rapid and sustainable growth in the business opportunity it creates is required. Youthful graduates of local universities and tertiary institutions should provide innovative individuals or partners who should have the energy and passion to match their inventiveness. Important Facilities And Resources Necessary For Incubator Start Up Where an incubator does not exist, it is important that the promopters of the intended incubator select the business focus it expects to be identified with. There are those that are product oriented or service oriented. Whether products or services are invovled, the level of technology to be used is critical. The supply of technology has to be provided in a good measure so that the initiative

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sustains. The most critical of all is access to market or market linkage infrastrcuture to enable the initiative have financial resource flows to retain it in natural existence. The Best Location Of The Business Incubator Product based incubators require proximity to the source of inputs which they process to get the final produce or output. Where an agricultural incubator is the focus, there is need to ensure that the incubator is located close enough to the source of the law materials. This is the reason behind many of the agricultural industries being located where their raw materials and labout are obtained from. Where a technology solution is the focus of incubation, there is need to have the rihgt infrastructure eg power, and telecommunication. With the existence of VSAT terminals, technology incubators can be located in any location that has adequate operational room and power supply. Symbiotic businesses can be incubated from the same location with no loss of benefit so long as their input resource requirements are met. WillPower has been incubating communities and indicuals process agricultural produce from the local farmer training centres. The reason for this has been the cost of the hosting of the facility, the availability of support personnel such as home economists and other support infrastructure. Should An Incubator Address Products Or Services? In a rural setting, symbiotic services could be co-located while in urban centers, the choice is dependent much on what has better potential to fetch better returns faster. The major driver for this would be the availability of ancilary support infrastructure and market infrastructure of either product or service. It would also depend on whetther there is a particular social class that the incubator is expected to target. Indicators To Best Assess The Businesses To Be Incubated The best indicators should be derived from the business plan but should include the following:

The business plan itself with all the elements that comprise an effective plan Availability of market Growth of market out turn Sales growth and associated profitability A well formed governance structure for self perpetuation Possible Investors Who Would Encourage Support Of New Technology

University institutions
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The Constituency Development Fund Large corporate institutions Government ministries Government parastatals Existence Of Professional Business Consultancy Networks Not well formed only Kenya Federation of Agricultural Producers (KENFAP) for farmers. The newly formed Farmers Competence Initiative (FCI) which seeks to address the Linkage of Production, Value Addition and Marketing to Policy (Link ProVaMP) is another linkage that provides professional support to farmers. The Institute of Mabagement Consultants in Kenya (IMC) and the Institute of Business Advisors in Kenya have no institutional form that can sustain incubation. Initial Investment In A Business Incubator The initial investment in an incubator can be reasonably low if the focus is for service development since in that case it will be more coordination, capacity development and linkages to both finance and market that would be a concern. A managers salary, office infrastructure, and an operational room is all that would then be required. When products have to be provided, the selected processing kit would have to be costed and quantified as part of the feasibility perspective. This will provide the needed costing which would be aggregated above the managers salary, office infrastructure, and the operational office room. Local Concept Of Supporting Business It is not acknowledged but most of Kenyans particularly the young generation have not seen serious nurturing of institutions. They have come around when organizations that ever existed were being killed and what has seemed to make sense has been deal making. Nurturing of a business requires patience and persistence, a rare commodity among many Kenyans. There is need for there to be serious mentoring for the incubatees to develop a working culture. Institutions that used to train upcoming small buinsess owners have long collapsed and those that exist do not have the ability to sustaina serious followup of SME creation. There is need to incubate even business mentoring institutions as there are people with the theoretical knowhow to give guidance to those with the practical knack for project implementation. Feasibility Of Creating Sustainability Of Incubators In Income Generation

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WillPower has incubated communities and own businesses with the incubatees taking a lesser proprotion of ownership in the institutions as the entire rist and management is taken in by WillPower. The experience has been that so long as there is desire by the incubatees to work long enough and to be pushed to deliver results, there is enormous potential for success. So long as the incubatees are willing to allow a small proportion to the incubator, there is enormous potential for incubator success. a business incubator is a safe environment for entrepreneurs to start a new business and grow into a sustainable and thriving business. So what does the typical business incubator provide? Space In the past, many have said that a business incubator should provide cheap rent for office space so that startup businesses can get off the ground. This is not what a business incubator should do. More importantly than reduced rent is the value added services that an incubator can provide. The main advantage of most incubator spaces are the shared conference rooms available to clients, the networking between incubator clients, and the shared printers, fax machines, scanners and other office tools. Business Counseling The the typical business incubator will primarily provide business counseling and/or business training. Seminars, training conferences, and speakers may be offered to help entrepreneurs increase their business skill set, as well as, 1-on-1 training sessions with seasoned entrepreneurs and business advisors. Access to Capital Many business incubators will provide access to capital through a number of various avenues. Business incubators may actually invest in your business in return for an equity stake, or provide access to and introductions to local angel investors, assist in the grant application process for technology-based businesses, or offer small business loans through the SBA Microloan Program. Connections One of the most valuable resources that many incubators can provide a small business is connections. Many business incubator directors have worked in industry for years and have connections with bankers, or maybe manufacturers or other experts that may be able to help bring your business to the next level. Ultimately the purpose of a business incubator is not to do the work for you, but rather provide you with the best environment possible to achieve success and sustainability with your business. So as a startup entrepreneur with little experience in starting a new venture, consider spending the first couple years in your local business incubator until you are ready to spread your wings and fly. Others include
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o o o o o o o o o o o

Mentoring on Business Basics Online Resources for Entrepreneurs Financial Management Business Plan Development Technology Assistance Links to Strategic Partners Advisory Boards and Mentors Access to Networking Activities Marketing Assistance Legal Advice Access to Local Funds

NOTE: Business incubation has been identified as a means of meeting a variety of economic and socioeconomic policy needs, which may include Creating jobs and wealth Fostering a community's entrepreneurial climate Technology commercialization Diversifying local economies Building or accelerating growth of local industry clusters Business creation and retention Encouraging women or minority entrepreneurship Identifying potential spin-in or spin-out business opportunities [6] Community revitalization Most common incubator services:[3]

Help with business basics Networking activities Marketing assistance High-speed Internet access Help with accounting/financial management
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Access to bank loans, loan funds and guarantee programs Help with presentation skills Links to higher education resources Links to strategic partners Access to angel investors or venture capital Comprehensive business training programs Advisory boards and mentors Management team identification Help with business etiquette Technology commercialization assistance Help with regulatory compliance Intellectual property management

Most common incubator services:

Help with business basics. Networking activities. Marketing assistance. High-speed Internet access. Help with accounting/financial management. Access to bank loans, loan funds and guarantee programs. Help with presentation skills. Links to higher education resources.

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Links to strategic partners. Access to angel investors or venture capital. Comprehensive business training programs. Advisory boards and mentors. Management team identification. Help with business etiquette. Technology commercialization assistance. Help with regulatory compliance. Intellectual property management.

NOTE: Entrepreneurs who wish to enter a business incubation program must apply for admission. Acceptance criteria vary from program to program, but in general only those with feasible business ideas and a workable business plan are admitted. The amount of time a company spends in an incubation program can vary widely depending on a number of factors, including the type of business and the entrepreneur's level of business expertise. Life science and other firms with long research and development cycles require more time in an incubation program than manufacturing or service companies that can immediately produce and bring a product or service to market. On average, incubator clients spend 33 months in a program. Many incubation programs set graduation requirements by development benchmarks, such as company revenues or staffing levels, rather than time in the program. Industry sectors intentionally supported by incubation programs. Technology. Computer software. Manufacturing. Services/professional.

Internet.

Electronics/microelectronics.

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Biosciences/life sciences.

Computer hardware.

Telecommunications.

Medical devices.

Wireless technology.

Healthcare technology.

Advanced materials.

Defense/homeland security.

Energy.

Environment/clean technologies.

Media.

Arts.

Construction.

Kitchen/food.

Fashion.

Wood/forestry.

Tourism. NOTE: More than half of all business incubation programs are "mixed-use" projects; that is, they work with clients from a variety of industries. Technology incubators account for 39% of incubation programs.

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Business incubation has been identified as a means of meeting a variety of economic and socioeconomic policy needs which may include: Creating jobs and wealth. Fostering a community's entrepreneurial climate. Technology commercialization. Diversifying local economies. Building or accelerating growth of local industry. Business creation and retention. Encouraging women or minority entrepreneurship. Identifying potential spin-in or spin-out business opportunities. Community revitalization.

CHOOSING THE RIGHT INCUBATOR: In deciding to use a business incubator, the following items should be taken into consideration before making a commitment: A. Space and Service-related Issues: 1. What are the charges for space and services at the incubator? 2. How do those rates compare to market rates locally? 3. What services does the incubator provide? 4. What are the lease requirements? 5. Is there room for your business to grow? B. Quality: 1. What information does the incubator provide about the extent and quality of the services the incubator provides?

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2. Does the incubator management seem to understand your business needs and can they offer on-site assistance and access to valuable contacts and community business services needed by your firm? C. Success Rates: 1. If the incubator has been open long enough to have a track record, what is the experience of firms who made use of the incubator for a few years and have now moved to other space? 2. How do the current tenants feel about the incubator? 3. Ask for references and check them.

D. Policies and Procedures: 1. What are the policies and procedures of the incubator? 2. Are some services provided free of charge? 3. How long can you remain a tenant? 4. Is there a graduated rent structure as your firm matures or does the incubator want to take royalties or an ownership right in its tenants' businesses in return for reduced charges? 5. Can you leave easily if your business turns bust? 6. Does the incubator provide seminar or training programs in addition to other business assistance services? E. Management: 1. Does the incubator appear to be managed well? 2. Does the management appear to have good ties with and knowledge of the business community? 3. Does the incubator have the continuing support and commitment of sponsoring organizations? Who are these sponsors and what are their goals and reasons for supporting the incubator? BUSINESS INCUBATION ASSOCIATON OF KENYA. The BIAK was launched in 2006 to co-ordinate and promotes business incubation in Kenya. BIAK provides a forum for business incubation managers and SME developers to identify and
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address the challenges faced by this emerging industry, and find solutions to improving service delivery and increasing value to this critical sector of the economy.

Many entrepreneurs don't have the space or desire to start a business out of their home, yet find renting space and setting up essential support functions is overwhelming financially and energy draining just at a time when their financial resources and energy are most needed for development of the business itself. A business incubator can be the perfect solution for such a person. Business incubators are designed specifically to help start-up firms. They usually provide:

Flexible space and leases, many times at very low rates. Fee-based business support services, such as telephone answering, bookkeeping, secretarial, fax and copy machine access, libraries and meeting rooms. Group rates for health, life and other insurance plans. Business and technical assistance either on site or through a community referral system. Assistance in obtaining funding. Networking with other entrepreneurs.

SERVICES PROVIDED BY BIAK: To bring excellence to the process of assisting early-stage business start-ups, BIAK is committed to offer the following to its members and to other entrepreneurs: 1. Information and Education BIAK recognizes the importance of information and its dissemination through education. Its goal is to have a membership that is informed and educated on the value of supporting new businesses and what models of business incubation can most effective in that endeavor. Its purpose is to strengthen our membership with information and education on world best practices on the support of new businesses. BIAK is in full support of the Business Incubation policy that is currently under development by the Kenya Government. BIAK will consider itself successful if it can assist its members in achieving the following goals and objectives: Conversion of ideas, innovations, and information into successful products and services through the use of information and communications technologies; Enhance the capabilities of enterprises that are under growth trap to reach new markets
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with improved processes using information and communications technologies; Facilitate entrepreneurs in the rural areas in the enhancement of efficiency in productivity and market reach for their MSMEs; Build a network of academics, business professionals, financers, managers, and others, for the purpose of nurturing business start-up initiatives that will fuel the economic growth of the country.

2. Partnerships and Networking: It facilitates networking, partnering, sharing, and mentoring opportunities among our stakeholders through forums organized by the association (BIAK). 3. Workshops and Other Forums Its aim is to champion, promote and enhance the concept and practice of business incubation, organize for entrepreneurs and innovators geared towards job creation, poverty eradication, and the socio-economic development agenda of the country. The promotion and enhancement of the Business Incubation concept, and encouragement of its practice, are vital to the countrys economic and social development. These allow the members and other stakeholders to adequately articulate these needs and to influence policy. 4. Business Incubation Services The major obligations of incubators include not only provision of management guidance, technical assistance, and consulting tailored to young, growing companies, but also to providing their clientele with access to appropriate rental space, flexible leases, shared basic business services, equipment, and technology support services. Such services include: Support in marketing, accounting, organization design, business strategies and other business capabilities; Access to common legal, secretarial, bookkeeping services and office and telecommunications equipment; Collaboration among businesses in a shared facility; Access to timely information on markets and emerging technical opportunities; Access to capacity building in business growth and development; Mentoring opportunities by local entrepreneurs in the region; Incubators can sometimes assist in obtaining financing necessary for growth. 5. Advocacy: There is need to sensitize stakeholders, especially the Government, on the significant role of business incubation in the support and growth of businesses. BIAK plays a primary role in this process by mobilizing stakeholders and facilitating forums for the exchange of knowledge and information.

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Types of Business Incubators (Typology and Overview): 1) Mixed Portfolio Business Incubation. It targets high-growth firms in a range of sectors. May select sectors that align with the overall, regional or national competitiveness strategy and may exist in environments where there is little entrepreneurial activity. It can align with regional and national strategies, germinate new areas of competitive capacity and provide a locus for innovation in this regard and In environments where there is little entrepreneurial activity. It may include extensive pre-incubation and education activities in order to source entrepreneurs and businesses and where new competitive sectors are under development, time to achieve impact and scale. 2) Technology Business Incubation. It targets high-growthtechnology firmsand requires the foundation ofstrong technology andhuman capital infrastructure.Where this infrastructureand human capital areweak, may requireextensive pre-incubationactivities. It may exist in economies in transition and can be an economic resource by attracting and developing research skills. It helps businesses to develop technology as a new source of competitive capacity. 3) Business Incubation with University Relationships. Frequently the university or academic institution has a role as founder and is Source of resources such as research, expertise, space and/or funds. Typically it targets technology firm, but may work with other sectors. It offers the opportunity to bridge the gap between research and commercialization or technology transfer and access to intellectual property and the potential to develop competitive businesses from it. 4) Agro-Business Incubation: It targets firms in the agriculture sector and aim is to commercialize innovative practices or transform sector firms from slow-growth to growth and can often have significant economic and social impact by improving the livelihoods of communities. It requires both business and community development skills and it may be challenging to enter markets beyond local communities. 5) Social Business Incubation: It uses entrepreneurship and innovation as a mechanism for social impact and engages entrepreneurs who may be disenfranchised or where illegal economies are prominent are may focus on socially valuable products and services. It can be a vehicle for economic impact and social change for individuals, families and communities. It involves effective models and methods evolving rapidly and may require significant
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investment in human capital and pre-incubation activities with no assurance that early stage business incubation can begin. 6) Technology Parks: Designed to accelerate growth of relatively mature businesses and focus on range of technology firms, but may target specific industries and may use incubation as way to source future clients and be recognized by public and private sectors as a source of economic impact. It can be a focal point for innovation and entrepreneurship, attracting talent, ideas and financial resources. 7) Associations and Networks: Targets incubationorganizations formembership and collectiveactivities and May advocates inpromotingentrepreneurship and innovation, especially in economies where this is not prevalent. It often play a significant role in learning and training and providing networks for members and can be influencers in including the SME sector in national and regional competitive strategies. It can be important for capacity development for both incubators and their clients and with other stakeholders such as policymakers.

TOPIC TWO: BUSINESS NETWORKING: Business networking is a marketing method by which business opportunities are created through networks of like-minded business people. There are several prominent business networking organizations that create models of networking activity that, when followed, allow the business person to build new business relationship and generate business opportunities at the same time. Many business people contend business networking is a more cost-effective method of generating new business than advertising or public relations efforts. This is because business networking is a low-cost activity that involves more personal commitment than company money. As an example, a business network may agree to meet weekly or monthly with the purpose of exchanging business leads and referrals with fellow members. To complement this activity, members often meet outside this circle, on their own time, and build their own "one-to-one" relationship with the fellow member. Business networking can be conducted in a local business community, or on a larger scale via the Internet. Business networking websites have grown over recent years due to the Internet's ability to connect people from all over the world.

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Business networking can have a meaning also in the ICT domain, i.e. the provision of operating support to companies / organizations, and related value chains / value networks. Large firms networks vs. Small business networks: Large firms networks spread wider than small business but the difference between the two types is that to be part of a large firm network you have to achieve a preset level of success. Online business networking: Businesses are increasingly using business social networks as a means of growing their circle of business contacts and promoting themselves online. these networking tools allow professionals to build up their circle of business partners they trust. By connecting these business partners the networking tools allow individuals to search for certain people within their network. Through introductions the members of these tools then can get in contact with new prospective business partners. Since businesses are expanding globally, social networks make it easier to keep in touch with other contacts around the world. Specific cross-border e-commerce platforms and business partnering networks now make globalization accessible also for small and medium sized companies.

Face-to-face business networking: Professionals who wish to improve their presentation skills with the urgency of physically being present attend general and exclusive events. Many professionals tend to prefer face-to-face networking over online based networking because the potential for higher quality relationships are possible. Many individuals also prefer face-to-face because people tend to prefer actually knowing and meeting who they intend to do business with. Networked Businesses: With networking developing many businesses now have this as a core part of their strategy, those that have developed a strong network of connections suppliers and companies can be seen as "Networked Businesses" and will tend to source the business and their suppliers through the network of relationships that they have in place. Networked businesses tend to be Open, Random and Supportive WHEREAS those relying on hierarchical, traditional managed approaches are Closed, Selective and Controlling. 10 Tips for Successful Business Networking:
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Effective business networking is the linking together of individuals who, through trust and relationship building, become walking and talking advertisements for one another. The tips include: 1. Keep in mind that networking is about being genuine and authentic, building trust and relationships, and seeing how you can help others. 2. Ask yourself what your goals are in participating in networking meetings so that you will pick groups that will help you get what you are looking for. Some meetings are based more on learning, making contacts, and/or volunteering rather than on strictly making business connections. 3. Visit as many groups as possible that spark your interest. Notice the tone and attitude of the group. Do the people sound supportive of one another? Does the leadership appear competent? Many groups will allow you to visit two times before joining. 4. Hold volunteer positions in organizations. This is a great way to stay visible and give back to groups that have helped you. 5. Ask open-ended questions in networking conversations. This means questions that ask who, what, where, when, and how as opposed to those that can be answered with a simple yes or no. This form of questioning opens up the discussion and shows listeners that you are interested in them. 6. Become known as a powerful resource for others. When you are known as a strong resource, people remember to turn to you for suggestions, ideas, names of other people, etc. This keeps you visible to them. 7. Have a clear understanding of what you do and why, for whom, and what makes your doing it special or different from others doing the same thing. In order to get referrals, you must first have a clear understanding of what you do that you can easily articulate to others. 8. Be able to articulate what you are looking for and how others may help you. Too often people in conversations ask, "How may I help you?" and no immediate answer comes to mind. 9. Follow through quickly and efficiently on referrals you are given. When people give you referrals, your actions are a reflection on them. Respect and honor that and your referrals will grow. 10. Call those you meet who may benefit from what you do and vice versa. Express that you enjoyed meeting them, and ask if you could get together and share ideas.

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SIGNIFICANCE OF SUCCESFUL BUSINESS NETWORKING: It enhances ideas acquisition i.e. the businessmen involved use the networks as a basis for ideas generation and adoption. It is an incubation process whereby businesses learn how to be successful i.e. during the networking sessions; infant enterprises learn tips of business success. It facilitates the adoption of new technology because the enterprise managers get to learn and acquire existing technology that they were not aware of initially. It helps businesses to identify other business opportunities for future expansion services. It is a marketing tool whereby businessmen can be assisted to identify potential markets. It helps businessmen to acquire other related managerial skills necessary for the success of the enterprise.

FORM AND TYPES OF BUSINESS AMALGAMATIONS/ COMBINATIONS A) FRANCHISING It is an arrangement where one party (the franchiser) grants another party (the franchisee) the right to use its trademark or trade-name as well as certain business systems and processes, to produce and market a good or serviceaccording to certain specifications. The franchisee usually pays a onetime franchise fee plus a percentage of sales revenue as royalty. Paying a royalty would make the franchisee enjoy the following gains:

Immediate name recognition Tried and tested products Standardbuildingdesign and dcor Detailedtechniques in running and promoting the business Training of employees
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Ongoing help in promoting and upgrading of the products. A proven system of operation and training in how to use it

NOTE: The franchiser gains rapid expansion of business and earnings at minimumcapitaloutlay. OVERVIEW & ANALYSIS In addition to a well-known brand name, buying a franchise offers many other advantages that aren't available to the entrepreneur starting a business from scratch. New franchisees can avoid a lot of the mistakes startup entrepreneurs typically make because the franchisor has already perfected daily operations through trial and error. Reputable franchisors conduct market research before selling a new outlet, so you'll feel greater confidence that there's a demand for the product or service. The franchisor also provides you a clear picture of the competition and how to differentiate yourself from them. Franchisees also enjoy the benefit of strength in numbers. You'll gain from economics of scale in buying materials, supplies and services, such as advertising, as well as in negotiating for locations and lease terms.

Sources of information to facilitate decision to invest in a franchise or not

Interviews with the franchisor Interviews with existing franchisees Examination of the franchise's Uniform Franchise Offering Circular (UFOC)

Examination of the franchise agreement

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Examination of the franchise's audited financial statements An earnings-claim statement or sample unit income (profit-and-loss) statement

Trade-area surveys List of current franchisees Newspaper or magazine articles about the franchise A list of the franchisor's current assets and liabilities

NOTE: Through this research, you would want to find out the following:

If the franchisor--as well as the current franchisees--are profitable How well-organized the franchise is If it has national adaptability Whether it has good public acceptance What its unique selling proposition is How good the financial controls of the business are If the franchise is credible What kind of exposure the franchise has received and the public's reaction to it

If the cash requirements are reasonable What the integrity and commitment of the franchisor are If the franchisor has a monitoring system Which goods are proprietary and must be purchased from the franchisor
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What the success ratio is in the industry

ADVANTAGES OF BUYING A FRANCHISE

Corporate image - The corporate image and brand awareness of the company is already established. Consumers are always more comfortable purchasing items from a familiar name or company they trust.

Savings in time - Since the franchise company already has the business model in place you can focus on running a successful business.

Be your own boss (at least to a point) as appose to working for an employer. Franchises offer you the chance to go into business yourself even if you are lacking in capital or business experience.

Getting a head start . Compared to normal start-up companies, franchises provide a head start to the business owner by providing support on an as-needed basis. A common saying in the franchise industry is "You're in business for yourself, but not by yourself."

Gain additional training and assistance . Franchises have a vested interest in your Success. As a result, many offer extended training and assistance with business set-up, personnel training, site selection, lease negotiation, collective buying power, and advertising.

Profit from name recognition. One of the most difficult things to do when starting a business is to develop a recognizable presence with your customers. Franchises eliminate this hurdle by developing an image in the marketplace.

DISADVANTAGES OF A FRANCHISE

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Costs may be higher than you expect. As well as the initial costs of buying the franchise, you pay continuing management service fees and you may have to agree to buy products from the franchisor.

The franchise agreement usually includes restrictions on how you can run the business. You might not be able to make changes to suit your local market.

The franchisor might go out of business due to financial problems. Other franchisees could give the brand a bad reputation, so the recruitment process of franchisees needs to be thorough.

You may find it difficult to sell your franchise - you can only sell it to someone approved by the franchisor.

All profits (a percentage of sales) are usually shared with the franchisor.

You must play by the rules. When you buy a franchise, you are not free to do as you please. In many cases, franchisors require you to play by their rules. These rules may pertain to such things as the products you are allowed or must carry, reporting procedures, dress codes, hours, and, overall, how you run your business.

FACTORS TO CONSIDER BEFORE BUYING A FRANCHISE Enjoy yourself. Pick something you are going to enjoy doing years down the road. It's easy to get mislead by promises of high profits and outstanding growth, but in the end, if you don't like it, chances are that you won't stick with it. Check out the competition. Research is critical whether you are starting your own business or buying one. Find out who your competition is. Are they busy? Is the market already saturated with this type of

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business? Asking questions like these can often save you from making a costly mistake. Buyer beware. Remember, franchisors want to sell you a business. Even though many franchisors will present you with their profit projections, it is best to come up with your own figures. Find out about financing. Over 250 franchisors offer some type of financing. Find out if the one you're interested in does. Evaluate the overall strength of the franchisor . Make certain you are given a all the rules and regulations of that franchise THE CONCEPT OF A FRANCHISE A franchise is A form of businessorganization in which a firm which already has a successful product or service (the franchisor) enters into a continuing contractual relationship with other businesses (franchisees) operating under the franchisor's trade name and usually with the franchisor's guidance, in exchange for a fee. I t is therefore afranchise is a right granted to an individual or group to market a company's goods or services within a certain territory or location. How franchising operates An individual who purchases and runs a franchise is called a "franchisee." The franchisee purchases a franchise from the "franchisor." The franchisee must follow certain rules and guidelines already established by the franchisor, and in most cases the franchisee must pay an ongoing franchise royalty fee, as well as an up-front, one-time franchise fee to the franchisor. The History of Franchising

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Franchising began back in the 1850's when Isaac Singer invented the sewing machine. In order to distribute his machines outside of his geographical area, and also provide training to customers, Singer began selling licenses to entrepreneurs in different parts of the country. In 1955 Ray Kroc took over a small chain of food franchises and built it into today's most successful fast food franchise in the world, now known as McDonald's. McDonald's currently has the most franchise units worldwide of any franchise system. Today, franchising is helping thousands of individuals be their own boss and own and operate their own business. Franchising allows entrepreneurs to be in business for themselves, but not by themselves. There is usually a much higher likelihood of success when an individual opens a franchise as opposed to a new business, since a proven business formula is in place. The products, services, and business operations have already been established. Common example of franchise arrangements

a. Dealership/ distributorship: Where manufacturers use franchisees to distribute thei

b. Service-based arrangement: Where a middle level college offers degree courses of a u

c. Intellectual property based agreements: Involves the use of a brand name for a ro

B) MERGERS The fully joining together of two previously separate corporations. A true merger in the legal sense occurs when both businesses dissolve and fold their assets and liabilities into a newly created third entity. This entails the creation of a new corporation. VARIETIES OF MERGERS
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Based onthe relationship between the two companies that are merging:

Horizontal merger - Two companies that are in direct competition and share the same product lines and markets. Vertical merger - A customer and company or a supplier and company. Think of a cone supplier merging with an ice cream maker. Market-extension merger - Two companies that sell the same products in different markets. Product-extension merger - Two companies selling different but related products in the same market. Conglomeration - Two companies that have no common business areas.

NOTE: Mergers can also be based on the how the merger is financed as follows: a. Purchase Mergers - this kind of merger occurs when one company purchases another. The purchase is made with cash or through the issue of some kind of debt instrument; the sale is taxable. b. Consolidation Mergers - With this merger, a brand new company is formed and both companies are bought and combined under the new entity.

C) ACQUISITION It is a corporate action in which a company buys most, if not all, of the target company's ownership stakes in order to assume control of the target firm. Acquisitions are often made as part of a company's growth strategy whereby it is more beneficial to take over an existing firm's operations and niche compared to expanding on its own. Acquisitions are often paid in cash, the acquiring company's stock or a combination of both.

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It differs from mergers in the following ways:

In a merger, the parties involved agree on the terms of operations of the merged business while in acquisition, the buyers of the business acquires ownership and control hence dictates operations.

In a merger, the companies may retain their identities by retaining the use of the same names while in an acquisition, only one business exists and the name and identity of the business depends on the buyer.

Where companies merge, they tend to retain their structures or agree on a structural operational system while an acquired business will have a structure dictated by the buyer.

Companies that merge will always retain their employees with only a few being affected, but when a business is acquired, the need to retain employees is not manadatory but it can be done for goodwill purposes.

In a merger two or more companies are involved while in an acquisition, there is the buyer and the seller of the business.

ADVANTAGES OF

MERGERS & ACQUISITIONS

The Target may hold a unique (or strong) market position There are complementary skill sets between the two companies The target assists with a geographic expansion The target gives reduced costs or improved profitability if it has a good track record The acquired business would givethe needed skills or experience in management or staff. This applies when the old staff is retained. Increase in breadth and depth of product line Improved access to new customer bases because market for the product or service will have already been demonstrated It may Stop or limit opportunities for a key competitor
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Some of the groundwork will already have been done in getting the business up and running. It may be easier for you to get finance as the business will have a proven track record. There may be established customers, a reliable income, a reputation to capitalize and build on and a useful network of contacts.

DISADVANTAGES OF MERGERS &ACQUISITIONS Cost: Purchasing a larger company is expensive. The company may not have the cash available to buy the second firm, and if it does have enough cash, it will not be able to use this cash on other projects. If the company has to borrow money to purchase the second firm, this increases the company's total debt burden. The company can also issue stock so it can afford the purchase, although the current stockholders will lose some control and ownership rights.

Employee

Retention: In an acquisition, the company will have

employees at both firms performing similar jobs after the purchase is complete. The buyer commonly fires excess employees if it has too many workers doing the same tasks after the buyout. Because employees are concerned about a future layoff, some employees will start looking for other jobs or quit after the company announces its merger acquisition plan.

Productivity:Combining two firms depends on the culture at each firm. A company that has a hierarchical and authoritarian structure may purchase a company which is much more flexible and allows workers more control over their job tasks. Workers may not be happy with the new management and productivity may decrease, if the purchaser makes many changes to previous workplace policies.

Value: Valuation of the combination is important. The seller's assets include intangible assets such as brand strength and goodwill, which the
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buyer pays as part of the purchase price. The right valuation should be done to identify the right purchase price. This is always a challenge due to the possibilities of over-valuation. You may need to honour or renegotiate any outstanding contracts the previous owner leaves in place.

D) TAKE OVERS

There is no tangible difference between an acquisition and a takeover; both words can be used interchangeably - the only difference is that each word carries a slightly different connotation. A takeover is used to reference a hostile takeover where the company being acquired is resisting WHILE acquisition is frequently used to describe more friendly acquisitions, or used in conjunction with the word merger, where both companies are willing to join together. A takeover generally occurs in transaction where in which the control of one company is taken over by another. This implies that a friendly merger negotiated between the boards of directors and shareholders of two independent companies is a takeover. TYPES OF TAKEOVER Friendly takeovers Here, before a bidder makes an offer for another company, it usually first informs the company's board of directors. If the board feels that accepting the offer serves shareholders better than rejecting it, it recommends the offer be accepted by the shareholders. Hostile takeovers

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A hostile takeover allows a suitor to take over a target company whose management is unwilling to agree to a merger or takeover. A takeover is considered "hostile" if the target company's board rejects the offer, but the bidder continues to pursue it, or the bidder makes the offer directly after having announced its firm intention to make an offer. Reverse takeovers A reverse takeover is a type of takeover where a private company acquires a public company. This is usually done at the instigation of the larger, private company, the purpose being for the private company to effectively issue shares or gets quoted in the stock exchange market while avoiding some of the expense and time involved in a conventional IPO.

Backflip takeovers A backflip takeover is any sort of takeover in which the acquiring company turns itself into a subsidiary of the purchased company. This type of a takeover rarely occurs. E) JOINT VENTURE A joint venture is a business agreement in which parties agrees to develop, for a definite period of time, a new entity and new assets by contributing equity. They exercise control over the enterprise and consequently share revenues, expenses and assets. It therefore involve two or more businesses joining together under a contractual agreement to conduct a specific business enterprise with both parties sharing profits and losses. The venture is for one specific project only. Reasons for forming a joint venture include:
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To reduce 'entry' risks in new markets assets

by using the local partner's

To cover for inadequate knowledge of local institutional or legal environment

To access to local borrowing powers There is the perception that the goodwill of the local partner is carried forward

To give access to local resources through participation of national partner

Access by one partner to foreign technology or expertise which is often a key consideration of local parties joining with foreigners.

To facilitate incoming foreign exchange and investment.

Some of the downsides of a joint venture may be:

Differing philosophies governing expectations and objectives of the partners An imbalance in the level of investment and expertise brought to the joint venture by the two parent organizations

Inadequate

identification,

support,

and

compensation

of

senior

leadership and management teams.

Conflicting corporate cultures and operational styles of the joint venture partners

F) STRATEGIC ALLIANCE

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A partnership with another business in which you combine efforts in a business effort involving anything from getting a better price for goods by buying in bulk together to seeking business together with each of you providing part of the product. The basic idea behind alliances is to minimize risk while maximizing your leverage.

G) MANAGEMENT BUYOUT A management buyout (MBO) is a form of acquisition where a company's existing managers acquire a large part or all of the company.The particular nature of the MBO lies in the position of the buyers as managers of the company and the practical consequences that follow from that i.e.due diligence process is likely to be limited as the buyers already have full knowledge of the company available to them. Some concerns about management buyouts are that the asymmetric information possessed by management may offer them unfair advantage relative to current owners. The Purpose of an MBO The purpose of such a buyout from the managers' point of view may be to save their jobs, either if the business has been scheduled for closure or if an outside purchaser would bring in its own management team. They may also want to maximize the financial benefits they receive from the success they bring to the company by taking the profits for themselves.

LEGAL FORMS AND TYPES OF BUSINESS OENERSHIP Factors to consider when selecting a form of business ownership Ease of formation: A good business should be set up easily without problems of legal formalities and cost of establishing it.

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Ease in raising capital: The minimum capital required should be raised with ease. Extent of liability: From the point of view of risk, an investor would prefer limited liability. This means that in case of insolvency, the law would only require one to be held responsible only up to the amount of capital agreed to be contributed. Flexibility of operations: A good form of business is the one that allows maximum flexibility and adaptability so that change can be introduced promptly and adjustments without difficulty. Continuity and stability: A good form of business should enjoy uninterrupted existence over a long period of time without threats of closing down. Retention of business secrets: A form that enables secrets to be retained or vital information to be protected is ideal. Extent of state regulations: Different forms of organizations are exposed to varying degree of control and regulations of the state. A good form should attract less state control and regulation. Tax liability: The basis of taxation for various forms is different. A good form will be that which attracts the minimum amount of tax liability. NOTE: The legal forms include: (A) SOLE PROPRIETORSHIP

A sole proprietorship, also known as a sole trader or simply a proprietorship, is a type of business entity that is owned and run by one individual and in which there is no legal distinction between the owner and the business. The owner receives all profits (subject to taxation specific to the business) and has unlimited responsibility for all losses and debts. Every asset of the business is owned by the proprietor and all debts of the business are the proprietor's. This means that the owner has no less liability than if they were acting as an individual instead of as a business. A sole proprietor may use a trade name or business name other than his or her legal name.

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Features of a sole proprietorship Owners The owners of a sole proprietorship only have to answer to themselves, but the business will cease to be a legal entity if the owner dies or sells the business. Finances A sole proprietorship has the ability to borrow funds, but that borrowing status is dependent on the owner's personal financial status. Liability The owners are personally liable for any defaults or lawsuits, and their personal property can be taken away in the event of a lawsuit. (Unlimited liability). Profit All the profits of the business belong to the owner. Profits from a sole proprietorship are not taxed--they are considered as income on the owner's personal taxes. Start Up A sole proprietorship is the easiest form of business to start, as there are virtually no legal formalities to complete. Advantages A sole proprietor has complete control and decision-making power over the business. No corporate tax payments. Minimal legal costs to forming a sole proprietorship. Few formal business requirements. Easiest and least expensive form of ownership to organize.

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Sole proprietors are in complete control, and within the parameters of the law, may make decisions as they see fit. Sole proprietors receive all income generated by the business to keep or reinvest. Profits from the business flow-through directly to the owner's personal tax return. The business is easy to dissolve, if desired.

Disadvantages All responsibilities and business decisions fall on the shoulders of the sole proprietor. Investors wont usually invest in sole proprietorships. Sole proprietors have unlimited liability and are legally responsible for all debt against the business. Their business and personal assets are at risk. May be at a disadvantage in raising funds and are often limited to using funds from personal savings or consumer loans. May have a hard time attracting high-caliber employees, or those that are motivated by the opportunity to own a part of the business. Some employee benefits such as owner's medical insurance premiums are not directly deductible from business income (only partially deductible as an adjustment to income).

A PARTNERSHIP A type of unincorporatedbusinessorganization in which multipleindividuals, called general partners, manage the business and are equallyliable for its debts; other individuals called limited partners may invest but not be directly involved in management and are liable only to the extent of their investments. Unlike a Limited Liability Company or a corporation, in a partnership each partner shares equal responsibility for the company'sprofits and losses, and its debts and liabilities. The partnership itself does not payincome taxes, but each partner has to report their share of business profits or losses on their individual tax return.
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