Learning Plan 1

Rehash
Business Enterprise Simulation | ABM

for corrections and suggestions, email at ejggramaje@addu.edu.ph

DISCUSSION
Legal Forms of Organization
A sole proprietorship is a firm that is owned by one person. From a legal perspective,
the firm and its owner are considered one and the same. On the plus side, this means that
all profits are the property of the owner (after taxes are paid, of course). On the minus
side, however, the owner is personally responsible for the firm’s losses and debts. This
presents a tremendous risk. If a sole proprietor is on the losing end of a significant lawsuit,
for example, the owner could find his personal assets forfeited. Most sole proprietorships
are small, and many have no employees. In most towns, for example, there are several
self-employed repair people, plumbers, and electricians who work alone on home repair
jobs. Also, many sole proprietors run their businesses from their homes to avoid expenses
associated with operating an office.
A partnership, two or more partners share ownership of a firm. A partnership is like a
sole proprietorship in that the partners are the only beneficiaries of the firm’s profits, but
they are also responsible for any losses and debts. Partnerships can be especially
attractive if each person’s expertise complements the others. For example, an accountant
who specializes in preparing individual tax returns and another who has mastered
business taxes might choose to join forces to offer customers a more complete set of tax
services than either could offer alone.
A corporation is involved in the separation of ownership and management.
Corporations sell shares of ownership that are publicly traded in stock markets, and they
are managed by professional executives. These executives may own a significant portion
of the corporation’s stock, but this is not a legal requirement.
Another unique feature of corporations is how they deal with profits and losses. Unlike in
sole proprietorships and partnerships, a corporation’s owners (i.e., shareholders) do not
directly receive profits or absorb losses. Instead, profits and losses indirectly affect
shareholders in two ways. First, profits and losses tend to be reflected in whether the
firm’s stock price rises or falls. When a shareholder sells her stock, the firm’s performance
while she has owned the stock will influence whether she makes a profit relative to her
stock purchase. Shareholders can also benefit from profits if a firm’s executives decide to
pay cash dividends to shareholders. Unfortunately, for shareholders, corporate profits
and any dividends that these profits support are both taxed. This double taxation is a big
disadvantage of corporations.

Financial Statements
The four main types of financial statements are:
1. Statement of Financial Position
Statement of Financial Position, also known as the Balance Sheet, presents the financial
position of an entity at a given date. It is comprised of the following three elements:
• Assets: Something a business owns or controls (e.g. cash, inventory, plant and
machinery,)
• Liabilities: Something a business owes to someone (e.g. creditors, bank loans,)
• Equity: What the business owes to its owners. This represents the amount of
capital that remains in the business after its assets are used to pay off its
outstanding liabilities. Equity therefore represents the difference between the
assets and liabilities.
2. Statement of Financial Performance
Income Statement, also known as the Profit and Loss Statement, reports the company's
financial performance in terms of net profit or loss over a specified period. Income
Statement is composed of the following two elements:
• Income: What the business has earned over a period (e.g. sales revenue, dividend
income, etc)
• Expense: The cost incurred by the business over a period (e.g. salaries and
wages, depreciation, rental charges, etc)
Net profit or loss is arrived by deducting expenses from income.

3. Cash Flow Statement

Cash Flow Statement presents the movement in cash and bank balances over a period.
The movement in cash flows is classified into the following segments:
• Operating Activities: Represents the cash flow from primary activities of a
business.
• Investing Activities: Represents cash flow from the purchase and sale of assets
other than inventories (e.g. purchase of a factory plant)
• Financing Activities: Represents cash flow generated or spent on raising and
repaying share capital and debt together with the payments of interest and
dividends.

4. Statement of Changes in Equity

Statement of Changes in Equity, also known as the Statement of Retained Earnings,
details the movement in owners' equity over a period. The movement in owners' equity is
derived from the following components:
• Net Profit or loss during the period as reported in the income statement
• Share capital issued or repaid during the period
• Dividend payments
• Gains or losses recognized directly in equity (e.g. revaluation surpluses)
• Effects of a change in accounting policy or correction of accounting error
Marketing Mix
The marketing mix refers to the set of actions, or tactics, that a company uses to promote
its brand or product in the market. The 4Ps make up a typical marketing mix - Price,
Product, Promotion and Place. However, nowadays, the marketing mix increasingly
includes several other Ps like Packaging, Positioning, People and even Politics as vital mix
elements.

Product: refers to the item being sold. The product must deliver a minimum level of
performance; otherwise even the best work on the other elements of the marketing mix
won't do any good.

Price: refers to the value that is put for a product. It depends on costs of production,
segment targeted, ability of the market to pay, supply - demand and a host of other direct
and indirect factors. There can be several types of pricing strategies, each tied in with an
overall business plan. Pricing can also be used a demarcation, to differentiate and
enhance the image of a product.

Place: refers to the point of sale. In every industry, catching the eye of the consumer and
making it easy for her to buy it is the main aim of a good distribution or 'place' strategy.
Retailers pay a premium for the right location. In fact, the mantra of a successful retail
business is “location, location, location”.
Promotion: this refers to all the activities undertaken to make the product or service
known to the user and trade. This can include advertising, word of mouth, press reports,
incentives, commissions, and awards to the trade. It can also include consumer schemes,
direct marketing, contests, and prizes.
Market Identification Process
Market identification is a strategic marketing approach and process that is intended to
define the specific customer of the product. It is composed of three strategic marketing
approaches that will assist the entrepreneur in defining the specific market of the product:

Market Segmentation
Market segmentation is an entrepreneurial marketing strategy designed primarily to divide
the market into small segments with distinct needs, characteristics, or behavior (Kotler &
Armstrong, 2014).
The entrepreneur now divides the total market and focus his business strategy to a smaller
market that have similar interests, preferences, needs, wants and other related variables.
The commonly used methods for segmenting the market are:

Geographic Segmentation
In geographic segmentation, the total market is divided according to geographical locations
in the Philippines like provincial regions, cities, provinces, municipalities and even barangay
units. When the entrepreneur divides the total market into smaller segments using
geographical segmentation, the following variables must be considered:
• Climate • Density
• Dominant Ethnic Group • Classification of the geographical
• Culture unit

Demographic segmentation
The market is of course divided into demographic variables of the consumers. The common
variables are the following:
• Gender • Education
• Age • Religion
• Income • Ethnic Group
• Occupation • Family Size

Psychological segmentation
In psychological segmentation, the market is divided in terms of what the customers think
and believe. It is based on the following variables:
• Needs and Wants • Knowledge and
• Attitude • Awareness
• Social Class • Brand Concept
• Personality Traits • Lifestyle

Behavioral segmentation
In behavioral segmentation, the market is divided based on the following variables:
• Perceptions • Benefits
• Knowledge • Loyalty
• Reactions • Responses

Market Targeting
After the segmentation process, which is the first stage of market identification, the
entrepreneur moves to the second stage called market targeting. Market targeting is a stage
in the market identification process that aims to determine the set of buyers with common
needs and characteristics. They are the market segment that the entrepreneurial venture
intends to serve. The number of segments to serve determines the appropriate
entrepreneurial marketing strategy to use. Generally, the entrepreneur can select one
segment or all segments of the total market with different entrepreneurial marketing
strategies. The basic strategies relative to the selected segment are the following:
Individual or one-on-one marketing
Segmentation marketing (differentiated or concentrated marketing)
Mass or undifferentiated marketing

Individual or one-on-one marketing

In the Individual or one-on-one marketing, the business provides a product that is suited or
fitted to a need of the consumers. It is based on the concept that the consumers have
different needs and wants. For example, tailoring shops use the one-on-one marketing
strategies since they make clothes for specific people based on their respective requests.
Furniture manufactures can also be in this basic strategy for clients who order customized
furniture.

Segmentation marketing (differentiated or concentrated marketing)

Differentiated marketing is a variation of the segmentation marketing strategy. Here the
entrepreneur covers several segments of the total market and designs a product for each
segment based on the capability of the business. For example, the different toothpaste and
milk products in the market are intended for different segments. Each type of toothpaste
and milk product is prepared to serve a different set of customers from several segments.
Concentrated marketing on the other hand can be sometimes called the niche marketing
strategy where the business selects only a few segments but intends to serve many customers
in the chosen segments. This set of customers is the niche.

Mass or undifferentiated marketing

Mass or undifferentiated marketing strategy takes into consideration the fact that the
customers have common needs and wants. The entrepreneur does not have to differentiate
them according to their needs and wants but rather assumes that his products will cater to
all types of customers in general. This strategy is usually applicable when the product is a
simple commodity that can be used by all types of customers regardless of their differences
in geographical, demographic, psychological and behavioral concerns. A good example is
when an entrepreneur engages in the production of refined white sugar. He does not have
to segment the whole market but rather mass produce sugar for the whole buying market.

Market positioning
Market positioning refers to the process of arranging a product to occupy a clear, distinct,
and desirable place in relation to other competing products in the mind-set of target
consumers. It is considered the last stage in the product identification process after the
entrepreneur has conducted market segmentation and already identified the particular
segment to serve. The first logical step that the entrepreneur must perform in the market
positioning is to determine that the product is truly differentiated from competitors,
primarily in terms of value and benefits that the customers will gain from it. There are two
major dimensions that will differentiate the product from its competitors in the market.
These are “lower price” and “more benefits” that those being sold at a higher price. Hence,
competitive advantage indirectly comes in.
Factors to Consider in Segmentation:
a.) Size of the market segment.
 b.) Accessibility of the market segment.
c.) Distinction of the market segment.

After segmentation, the entrepreneur and his/her team must conduct a proper and critical
evaluation of every segment. This is done in the ‘Target Marketing’ process.
b. Target Marketing – is a stage in market identification process that aims to
determine the set of buyers with common needs and characteristics. They are the market
segment that the entrepreneurial venture intends to serve.

Stage 1: Stage 3:
Stage 2:
Market Market
Market Targeting
Segmentation Positioning

Illustration A. Market Identification

Market Segment Evaluation
Important Factors to evaluate a segment.
1. Size of the segment and its expected growth.
2. Existing and probable structure of the segment.
Michael Porter’s Five Forces of Competition
3. Capability of the business.
Does the business have the required competency to take advantage of the existing
opportunity?

Industry Analysis
SWOT Analysis
A SWOT analysis is designed to facilitate a realistic, fact-based, data-driven look at the
strengths and weaknesses of an organization, its initiatives, or an industry. The
organization needs to keep the analysis accurate by avoiding pre-conceived beliefs or gray
areas and instead focusing on real-life contexts. Companies should use it as a guide and
not necessarily as a prescription.
• SWOT analysis is a strategic planning technique that provides assessment tools.
• Identifying core strengths, weaknesses, opportunities, and threats lead to fact-
based analysis, fresh perspectives and new ideas.
• SWOT analysis works best when diverse groups or voices within an organization
are free to provide realistic data points rather than prescribed messaging.
Using internal and external data, a SWOT analysis can tell a company where it needs to
improve internally, as well as help develop strategic plans.

Strengths describe what an organization excels at and what separates it from the
competition: a strong brand, loyal customer base, a strong balance sheet, unique
technology, and so on. For example, a hedge fund may have developed a proprietary
trading strategy that returns market-beating results. It must then decide how to use those
results to attract new investors.
Weaknesses stop an organization from performing at its optimum level. They are areas
where the business needs to improve to remain competitive: a weak brand, higher-than-
average turnover, high levels of debt, an inadequate supply chain, or lack of capital.
Opportunities refer to favorable external factors that could give an organization a
competitive advantage. For example, if a country cuts tariffs, a car manufacturer
can export its cars into a new market, increasing sales and market share.
Threats refer to factors that have the potential to harm an organization. For example, a
drought is a threat to a wheat-producing company, as it may destroy or reduce the crop
yield. Other common threats include things like rising costs for materials, increasing
competition, tight labor supply and so on.

Demand and Supply Analysis

Law of Demand vs. Law of Supply
The law of demand states that, if all other factors remain equal, the higher the price of a
good, the less people will demand that good. In other words, the higher the price, the
lower the quantity demanded. The amount of a good that buyers purchase at a higher
price is less because as the price of a good goes up, so does the opportunity cost of buying
that good. As a result, people will naturally avoid buying a product that will force them to
forgo the consumption of something else they value more.
Like the law of demand, the law of supply demonstrates the quantities that will be sold at
a certain price. But unlike the law of demand, the supply relationship shows an upward
slope. This means that the higher the price, the higher the quantity supplied. Producers
supply more at a higher price because selling a higher quantity at a higher price increases
revenue.
Unlike the demand relationship, however, the supply relationship is a factor of time. Time
is important to supply because suppliers must, but cannot always, react quickly to a
change in demand or price. So, it is important to try and determine whether a price change
that is caused by demand will be temporary or permanent.
Let's say there's a sudden increase in the demand and price for umbrellas in an
unexpected rainy season; suppliers may simply accommodate demand by using their
production equipment more intensively. If, however, there is a climate change, and the
population will need umbrellas year-round, the change in demand and price will be
expected to be long term; suppliers will have to change their equipment and production
facilities in order to meet the long-term levels of demand.
PEST Analysis

Political
Political or politically motivated factors that could impact the organization.
Examples include:
Government policy, political stability or instability, bureaucracy, corruption, competition regulation,
foreign trade policy, tax policy, trade restrictions, labor/environmental/copyright/consumer protection
laws, funding grants & initiatives, etc.
Questions to ask:
• What government policies or political groups could be beneficial or detrimental to our success?
• Is the political environment stable or likely to change?

Economic
Overall economic forces that could impact on your success.
Examples include:
Economic trends, growth rates, industry growth, seasonal factors, international exchange rates,
International trade, labor costs, consumer disposable income, unemployment rates, taxation, inflation,
interest rates, availability of credit, monetary policies, raw material costs, etc.
Questions to ask:
• What economic factors will affect us moving forward?
How does the performance of the economy affect us at the moment?
• How are our pricing, revenues, and costs impacted by each economic factor?

Social
Social attitudes, behaviors, and trends that impact on your organization and target
market.
Examples include:
Attitudes and shared beliefs about a range of factors including money, customer service, imports,
religion, cultural taboos, health, work, leisure, the environment; population growth and demographics,
immigration/emigration, family size/structure, lifestyle trends, etc.
Questions to ask
• How do our customer’s beliefs and values influence their buying habits?
• How do cultural trends and human behavior play a role in our business?

Technological
Technology that can affect the way you make, distribute, and market your products and
services.
Examples include:
Technology and communications infrastructure, legislation around technology, consumer access to
technology, competitor technology and development, emerging technologies, automation, research and
innovation, intellectual property regulation, technology incentives, etc.
Questions to ask:
• What technological advancements and innovations are available or on the horizon?
• How will this technology impact on our operations?
Operations Management
Planning
It is the basic function of management. It deals with chalking out a future course of action
& deciding in advance the most appropriate course of actions for achievement of pre-
determined goals. According to KOONTZ, “Planning is deciding in advance - what to do,
when to do & how to do. It bridges the gap from where we are & where we want to be”. A
plan is a future course of actions. It is an exercise in problem solving & decision making.
Planning is determination of courses of action to achieve desired goals. Thus, planning is
a systematic thinking about ways & means for accomplishment of pre-determined goals.
Planning is necessary to ensure proper utilization of human & non-human resources. It
is all pervasive, it is an intellectual activity and it also helps in avoiding confusion,
uncertainties, risks, wastages etc.

Organizing
It is the process of bringing together physical, financial and human resources and
developing productive relationship amongst them for achievement of organizational
goals. According to Henry Fayol, “To organize a business is to provide it with everything
useful or its functioning i.e. raw material, tools, capital and personnel’s”. To organize a
business involves determining & providing human and non-human resources to the
organizational structure. Organizing as a process involves:
• Identification of activities.
• Classification of grouping of activities.
• Assignment of duties.
• Delegation of authority and creation of responsibility.
• Coordinating authority and responsibility relationships.

Staffing
It is the function of manning the organization structure and keeping it manned. Staffing
has assumed greater importance in the recent years due to advancement of technology,
increase in size of business, complexity of human behavior etc. The main purpose o
staffing is to put right man on right job i.e. square pegs in square holes and round pegs in
round holes. According to Kootz & O’Donell, “Managerial function of staffing involves
manning the organization structure through proper and effective selection, appraisal &
development of personnel to fill the roles designed un the structure”. Staffing involves:
• Manpower Planning (estimating man power in terms of searching, choose the
person and giving the right place).
• Recruitment, Selection & Placement.
• Training & Development.
• Remuneration.
• Performance Appraisal.
• Promotions & Transfer.
Coordinating
It is that part of managerial function which actuates the organizational methods to work
efficiently for achievement of organizational purposes. It is considered life-spark of the
enterprise which sets it in motion the action of people because planning, organizing, and
staffing are the mere preparations for doing the work. Direction is that inert-personnel
aspect of management which deals directly with influencing, guiding, supervising,
motivating sub-ordinate for the achievement of organizational goals. Direction has
following elements:
• Supervision
• Motivation
• Leadership
• Communication

Supervision - implies overseeing the work of subordinates by their superiors. It is the

act of watching & directing work & workers.
Motivation - means inspiring, stimulating or encouraging the sub-ordinates with zeal to
work. Positive, negative, monetary, non-monetary incentives may be used for this
purpose.
Leadership - may be defined as a process by which manager guides and influences the
work of subordinates in desired direction.
Communications - is the process of passing information, experience, opinion etc from
one person to another. It is a bridge of understanding.

Controlling
It implies measurement of accomplishment against the standards and correction of
deviation if any to ensure achievement of organizational goals. The purpose of controlling
is to ensure that everything occurs in conformities with the standards. An efficient system
of control helps to predict deviations before they occur. According to Theo Haimann,
“Controlling is the process of checking whether or not proper progress is being made
towards the objectives and goals and acting if necessary, to correct any deviation”.
According to Koontz & O’Donell “Controlling is the measurement & correction of
performance activities of subordinates in order to make sure that the enterprise objectives
and plans desired to obtain them as being accomplished”. Therefore, controlling has
following steps:
• Establishment of standard performance.
• Measurement of actual performance.
• Comparison of actual performance with the standards and finding out deviation if
any.
• Corrective action.

Employee Relationship Management

Relationship influences employee behaviors at work. Expectations of each other,
perceptions of the intentions of either, distributions of assignments, readiness to conform
or to rebel, enthusiasm to contribute etc., are to some extent outcomes of the relationship
between the employees. Attitude and motivation influences and is influenced by the
nature of the relationship.
Employee Relationship Management refers to the practices or initiatives for
ensuring that the employees are happy and are productive. It helps in a variety of ways
including employee recognition, policy development and interpretation, and all types of
problem solving and dispute resolution. From the employee relations perspective, an
employee is an asset rather than a cost, and open communication and goal orientation are
encouraged. It is accepted that legitimate differences exist in workplaces, but the aim is
to reduce conflict through effective procedures and relationships. An effective employee
relation involves creating and cultivating a motivated and productive workforce.
Employees are motivated from within, since the management help to nurture the type of
environment where employees thrive, enabling the organization to outperform the
competition.
The core issues which need to be investigated by the management for ERM (Fig 1) are as
follows.
Communication – Open communication between the employees as well as between the
management and the employees is very vital. Transparency in communication is also very
important for a healthy employee relationship management. When employees feel that
they are not being heard, they become frustrated which lead to their lower morale. Lower
employees’ morale can result in lower productivity and an uncomfortable, or even hostile,
work environment.

Conflict management – When any problem arises, it is necessary for the management
to go into the root of the problem. Finding the basic reasons of the problem and removing
them, is important for the handling of the problem. Removal of the conflicts between
employees and the management is a fundamental aspect of the ERM.

Group activities – Group activities at the workplace are to be encouraged. Individual

employees are to be motivated to work together probably in a group so that the comfort
level increases. The more the employees interact, the more they get to know each other
and more they come closer to each other. They develop behavior where level of
cooperation and trust is high. It helps in meeting of the targets and the deadlines.

Employees’ growth – If the work environment becomes monotonous to the employees

and if a feeling crops up in the employees that they are only required for putting in their
hours at the work, then they work mechanically and their motivational level drops
drastically. If employees of the organization have the feeling that they are a valuable asset
for the organization based on their work, as well as their abilities provide the organization
important ideas and offer input for the improvements in the organizational performance,
and they have enough opportunities for their growth within the organization then a
positive work environment gets created within the organization. Management is to
support this aspect of the ERM so that the organization performs well in the competitive
environment.

RESOURCES
References:
• https://saylordotorg.github.io/text_mastering-strategic-management/s13-04-
legal-forms-of-business.html
• https://accounting-simplified.com/financial/statements/types.html
• https://www.investopedia.com/terms/s/swot.asp
• https://www.mindtools.com/pages/article/newTMC_09.htm
• https://www.groupmap.com/map-templates/pest-analysis/
• https://www.investopedia.com/terms/l/law-of-supply-demand.asp
• https://www.managementstudyguide.com/management_functions.htm
• https://www.ispatguru.com/employee-relationship-management/
Materials:
• AAT Format and Guide for ABM
• Learning Plan 3 of Entrepreneurship: Understanding the Market