Definitive Study Guide: Elements of Professionalism and Business Fundamentals

Elements of Professionalism

  • Definition: Characteristics that define a business, including soft skills and values associated with professional conduct.

  • Examples of Characteristics:

    • Be dependable

    • Be a team player

    • Be respectful

    • Be clear

    • Be ethical

    • Strive to be the best

  • Importance: Directs operations within firms and forms the foundational theory for professional conduct in business.

Business Fundamentals

  • Profit-Seeking Organizations:

    • Primary goal is to make money.

    • Can produce goods or services.

    • Example: A bakery requires seeds for flour to make bread.

  • Key Business Concepts:

    • Revenue Model: Method by which a business generates income through sales.

    • Business Model: Describes how a business operates and sustains long-term sales generation.

    • Profit: Revenue remaining after deducting all expenses.

    • Competitive Advantage: Unique traits that differentiate a business from competitors.

  • Types of Businesses:

    • Goods-producing businesses

    • Service businesses

  • Risk and Reward Dynamics:

    • Healthy competition and relationships are crucial for profit generation.

    • Moral Hazard: Risks arise from businesses making decisions that can harm themselves and others due to interconnectedness.

Double-Edged Sword Concept

  • Positive Effects of Business:

    • Provides valuable goods and services

    • Creates employment

    • Contributes to tax revenue

    • Facilitates economic growth through revenue generation.

  • Negative Effects of Business:

    • Causes pollution

    • Health and safety risks

    • Disruption of communities due to differing values

    • Contributes to financial instability and inequality.

Core Business Functions

  • Divided Into Five Functions:

    1. Research and Development (R&D):

    • Focus on discovering or designing new products and improving existing ones.

    1. Manufacturing and Operations (M&O):

    • Actual production and service delivery process.

    1. Marketing and Sales:

    • Selling directly to consumers (B2C) or other businesses (B2B).

    1. Finance and Accounting:

    • Maintaining financial records, revenue, and expense tracking.

    1. Human Resources:

    • Recruitment, training, and support for employee development.

Economic Environment and Factors of Production

  • Economy: Sum of all economic activities.

  • Microeconomics: Focuses on individual firms and their interactions.

  • Macroeconomics: Addresses larger economic aggregates, such as national economies.

  • Factors of Production:

    • Knowledge

    • Human resources

    • Natural resources

    • Capital

Entrepreneurship Concepts

  • Entrepreneurship Definition:

    • Launching a business to create value from scratch.

    • Characterized by innovation and risk-taking.

  • Characteristics of Entrepreneurs:

    • Identify problems and develop solutions

    • Calculate risks

    • Drive breakthrough innovations

  • Failure Rates:

    • 20% of businesses fail within the first year

    • 75% of venture-backed startups fail.

  • Success Definition:

    • A company remains on the market with positive profit generation for over 4-5 years.

  • Opportunity Criteria:

    • Attractive: Customer appeal

    • Timeline: Right timing for market entry

    • Durable: Long-lasting relevance

    • Value Proposition: Clear value offered to customers.

  • Entrepreneurial Process Stages:

    1. Creative Recognition: Brainstorming business ideas.

    2. Setting Goals: Establishing timelines for growth.

    3. Developing Solutions: Crafting ideas to meet customer needs.

    4. Market Entry: Launching the product in the market.

Effectual Logic of Entrepreneurship

  • Principles of Effectual Logic:

    1. Bird-in-Hand: Start with available resources and knowledge.

    2. Affordable Loss: Invest only what you can afford to lose.

    3. Crazy Quilt: Build a network of stakeholders.

    4. Lemonade Principle: Embrace unexpected opportunities while managing risks.

    5. Pilot in the Plane: Control the business outcome through present actions instead of predictions.

Characteristics of Small Businesses and Startups

  • Narrow Focus: Serves specific niches rather than broad markets.

  • Innovation Freedom: Greater flexibility for creative solutions due to fewer management layers.

  • Quick Decision-Making Processes: Faster responses to market changes.

  • Economic Role: Job creation, product innovation, and injecting funds into the economy while taking risks larger corporations avoid.

  • Failure Reasons:

    • Lack of managerial capacity

    • Poor strategic planning

    • Inexperience and inadequate training

    • Challenges with market penetration

    • Financial issues leading to bankruptcy

Financing Your Business Journey

  • Stages of Business Growth:

    1. Early Stage: Initial investments without external funding.

    2. Growth Stage: Seeking loans and investors.

    3. Mature Stage: Establishing firm operations and revenue streams.

Industry Analysis and Frameworks

  • PESTEL Framework:

    • Examines external factors affecting a business:

    • Political

    • Economic

    • Social

    • Technological

    • Environmental

    • Legal

  • Porter’s Five Forces:

    • Analyzes industry competition based on supplier power, threat of substitutes, threat of new entrants, buyer power, and competitive rivalry.

  • Limitations of Frameworks:

    • Many frameworks have limitations often tied to cultural biases, assumptions, and fixed time interpretations.

Value Chain and Competitive Advantage

  • Value Chain Definition: Process of transforming resources into valuable products/services to deliver to customers.

  • Sustainable Competitive Advantage:

    • Characteristics include value, rarity, inimitability, robustness, and non-substitutability.

SWOT Analysis

  • SWOT Framework:

    • Internal Analysis: Strengths and Weaknesses

    • External Analysis: Opportunities and Threats

  • TOES Matrix: Compares internal strengths and weaknesses with external opportunities and threats in a simpler format than SWOT.

Strategy and Capabilities

  • Strategic Positioning:

    • Long-term planning involving resource configuration, stakeholder value, and organizational strategies.

  • Strategic Management Process: Steps include diagnosis (environmental and capability assessment), option evaluation, and implementation to sustain growth and identify future opportunities.

Portfolios and Product Matrixes

  • BCG Matrix: Categorizes products based on market share and growth potential: Question Marks, Stars, Cash Cows, Dogs.

  • Ansoff Matrix: Supports decision-making regarding market penetration, market development, product development, and diversification.

  • McKinsey Matrix: Analyzes portfolio strength and attractiveness of business based on products collectively rather than individually.

Conclusion and Review Tips

  • Review all relevant frameworks, understand their uses and limitations, and apply them in practice scenarios. Emphasize internal and external analysis in business strategy assessment for best results in academic evaluations.