Innovation and Entrepreneurship

Lecture 1: Introduction to Innovation and Entrepreneurship

Department of Information and Communication Technology

 Outline of the syllabus

❖ Week 1 – Introduction to the Innovation and Entrepreneurship

❖ Week 2 – Innovation Management tools and Techniques
❖ Week 3 – what is Invention, innovation, creativity, ideas and opportunities.
❖ Week 4 –Dynamics of Ideation and Creativity
❖ Week 5 – New Product development process
❖ Week 6 – Introduction of Entrepreneur and Entrepreneurship
❖ Week 7 – Classification of Entrepreneurs and what is Entrepreneurship?
2
 Outline of the syllabus

❖ Week 8 – What is a Business Plan?

❖ Week 9 – What is a Business Model?
❖ Week 10 – Marketing concept and how to write an effective marketing
plan to your business.
❖ Week 11 – Cash Management and how to write an effective financial plan.
❖ Week 12 - Operation plan and future enhancement of the business
❖ Week 13– How to evaluate the Business Plan by the Investors
❖ Week 14 – Prepare an Effective Business Plan for your Business
3
 Learning Objectives

After completing this module you will be able to:

❖ The concepts of innovation and innovation management tools and
techniques
❖ The differences between an idea, opportunity, invention and creation and
how ideas are converted to the opportunities
❖ The process of developing new products/service
❖ Product/Service development process
❖ Who is an entrepreneur and characteristics of an entrepreneur and risks
for businesses and how risks could be mitigated?

4
 Learning Objectives (Contd.)

After completing this module you will be able to:

❖ The business plan and its components
❖ What is the business model and understand the converses of the business
model?
❖ How to select an effective business model for your startup business
❖ The Financial Plan, Marketing Plan and operation plan of the business
plan.
❖ How to develop an effective business plan for a start-up company.

5
 Innovation Management and Entrepreneurship

About the Lecturers

Name: Rohan Samarasinghe
(Ph.D in Information Science , MBA in Management of Technology (MOT))

E-Mail : rohan@ict.cmb.ac.lk
Affiliation: Department of Information and Communication Technology
Faculty of Technology
University of Colombo.
Innovation and Entrepreneurship

Introduction – Innovation, invention and creation

Introduction –Entrepreneurship and how

innovation used by the entrepreneurs

Component of the Business Plan

How to write an effective Business Plan

Recommended Text Books for the Course
 Evaluation Criteria

❖ Continuous Assessments - 30%

✓ Final Exam – 70%
✓ Three-hour paper having 4 questions
 Learning Outcomes

❖ Explain concepts of innovation and innovation management tools

and techniques
❖ Explain the differences between an idea, opportunity, invention
and creation and how ideas are converted to the opportunities
❖ How innovative ideas convert to a product or service
❖ Explain the process of developing new products
❖ Understand who is an Entrepreneur and what is an
Entrepreneurship
❖ Understand the characteristics of an Entrepreneur
 Learning Outcomes

❖ How to start a venture Business.

❖ Understand the fundamentals of the Business Plan
❖ Get the hands on experience of preparing an innovative business
plan
❖ How to analyze the business plans by the venture capitalists
 Great Innovations that Change the World

From ancient tools to the latest digital advances, human

inventions and technologies have shaped civilizations and
transformed life on the Earth.
 Great Innovations that Change the World
Compass Old Map of Travel Wheels
Great Innovations that Change the World

Automobile
The foundation to the modern car year was
laid in 1886 by German inventor Karl Benz,
Cars did not become widely available until the
early 20th century. Henry Ford innovated
mass-production techniques that became
standard, with Ford, General Motors, and
Chrysler.
 Great Innovations that Change the World

Steam Engine
Thomas Savery patented the first practical
steam engine in 1698. It was one of the greatest
inventions made by a man making him one of
the people who have changed the world. Later
in 1781, James Watt patented an improved
steam engine and went on to fuel one of the
most momentous technological leaps in human
history during the Industrial Revolution
Great Innovations that Change the World

Concrete Gasoline
Great Innovations that Change the World

Airplane Nail
Great Innovations that Change the World

Bulb Electricity
 What do you think of
these product/services
introduced in last decades
http://www.pbs.org/nbr/site/features/special/subdir/top-30-innovations_slide-show/

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21
22
23
24
25
26
27
28
 Best Innovations in 2019

https://time.com/collection/best-inventions-
2019/

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 Carefully Analyze Those Innovations

Requirement
Develop a
or Ideas to commercially Market the
unmet/unsee solve it viable product/servic
n need
product/service e

Marketing
Research
Solutions for Requirements or unmet/unseen Need

❑ New product/service
❑ Individual ideas.

❑ Collective research or collective ideas

❑ Modify existing product/service

Innovation and creation of product/service

 Creativity and Innovation

Creativity is typically used to refer to the act of producing new

ideas, approaches or actions, while innovation is the process of
both generating and applying such creative ideas in some specific
context

32
 Seven Sources of Innovation

❖ The unexpected—the unexpected success, the unexpected failure, the unexpected

outside event;
❖ The incongruity—between reality as it actually is and reality as it is assumed to
be or as it "ought to be";
❖ Innovation based on process need (necessity is the mother of innovation)
❖ Changes in industry structure or market structure that catch everyone
unawares.

33
 Seven Sources of Innovation

❖ Demographics (population changes)

❖ Changes in perception, mood, and meaning
❖ New knowledge, both scientific and nonscientific.

34
 Where do Ideas come from

❖ Your University Research

❖ Your experience and background
❖ Things you like to do and you are good at
❖ Your current company
❖ Peers and friends
❖ Brainstorming
❖ Business and research journals/ Internet

35
End of Lecture 1

36
 Innovation and Entrepreneurship

Lecture 2 : Innovation Management - Success Stories and Identifying the

opportunities
Department of Information and Communication Technology
 Outline of the Lecture
❖ Definition of the opportunity
❖ Different forms of opportunities
❖ How to identify the opportunities.
❖ Characteristics of the opportunities
❖ Difference between Opportunity and Idea
 Entrepreneur

Convert the ideas into

commercially viable
Innovative products or Develop and market them
services

3
 Entrepreneur

An entrepreneur can be defined as a person who tries to create

something new, organizes production and undertakes risks and
handles economic uncertainty involved in enterprise.

 Entrepreneur can be classified in various

ways and views:
 RiskBearer
 Organizer

 Innovator
4
Entrepreneurship is ▪ Parents
▪ House wife /husband

TURNING
▪ Students
▪ Entrepreneurship
Teachers, Lecturers
▪ VC, Deans,
is a Heads
▪ Religious Leaders
Life Style !
▪ Scientists
▪ Farmers
▪ Managers
(European Commission, 2016) ▪ Business Owners
5
 Products List

Japan Motorcycles
Automobiles
Commercial vehicles
Scooters
Generators
36 Water pumps
Garden equipment
Motors
Robotics
Jet aircrafts
Jet engines
Suichiro Honda Solar cells
telematics
In 1950
Company Turnover US $ Employees

HONDA 121.6 billion 208,399

6
 113

Akiyo Morita

Company Turnover US $ Employees

SONY 67.5 billion 131,700

7
Korea 13

Lee Byung Chull

Company Turnover US $ Employees

SAMSUNG 305 billion 489,000

8
 84

Chung Ju-yung
in 1947 as a construction firm

Company Turnover US $ Employees

Hyundai Motor Company 76 billion 104,731

9
 180 Koo In-Hwoi
Founded in 1958

Company Turnover US $ Employees

LG Electronics 47.92 billion 82,000

10
Switzerland

66
Company Turnover US $ Employees

NESTLE 93.22 billion 339,000

11
 07
Germany 34

16
US $ 122.9 bn

US $ 165.8 bn 51 165
US $ 245 bn

US $ 102.2 bn US $ 52.4 bn
12
USA
06 20
09

01 US $ 233.7 bn

US $ 246.2 bn 63 US $ 152.3 bn
US $ 482.1 bn

26 44
21 US $ 93.5 bn

48
US $ 107 bn
61
US $ 149.5 bn
US $ 140.3 bn US $ 103.3 bn US $ 96.1 bn
13
New Zealand

USD 15. 414 Billion

14
Netherlands
Royal Dutch Shell plc
05
The Fifth Largest in the world

US $ 272.1 Billion
15
 161
India 215
232

226
US $ 41.6 bn
US $ 54.7 bn
US $ 43.4 bn
US $ 42 bn 367 358
423

US $ 28.8 bn US $ 29 bn
US $ 25.2 bn 16
China 03
02
27
US $ 329.6 bn

46
US $ 299.2 bn 04
US $ 140.1 bn
22 45
US $ 106.6 bn

US $ 294.3 bn
US $ 147.9 bn US $ 106.7 bn
17
 What is an Opportunity

Requirement or Develop a
unmet/unseen Ideas to commercially
solve it Market the
need viable
product/service
product/service

Marketing
Research Entrepreneurship is the process by which individuals pursue opportunities
without regard to resources they currently controlled.
Stevenson and Jarillo(1990)
 What is an Opportunity

Opportunity is a favourable set of circumstances that creates a need

for a new product, service or business.
Barringer& Irelan(2010)
 What is an Opportunity (Contd.)
❖ From an economic perspective, entrepreneurial opportunities generally
refer to situations that hold the potential for new economic value.
(Alvarez & Barney, 2007; Kirzner, 1997; Schumpeter, 1934).

❖ opportunities exist in “reality.” The role of the entrepreneur is to identify

such opportunities and “claim” those that hold potential to generate
economic value.
Opportunities
 Five Forms of Entrepreneurial
Opportunities
Schumpeter outlined five forms of entrepreneurial
❖ The introduction of new goods
❖ The introduction of new methods of production
❖ The opening of a new market
❖ The control of a new source of raw materials or half-manufactured goods
❖ The creation of new type of industrial organization
 How Entrepreneurs Identify New Business
Opportunities
The opportunity can be defined as “the chance to meet a market need,
interest or want through a creative combination of resources and
deliver superior values”
How to identify the opportunities
❖ Think out of the Box
❖ Gain knowledge and Experience
❖ Understand the need and wants of the customer segment
 How Entrepreneurs Identify New
Business Opportunities (Contd.)
1. Observing Trends
I. Economic Trends
II. Social Trends
III. Cultural Trends
IV. Technical Trends
V. Political Trends
VI. Legal/ Regularity Trends
Trends
How Entrepreneurs Identify (Contd.)
2. Identifying Problems - Every problem is a brilliantly
disguised opportunity
How Entrepreneurs Identify (Contd.)
3. Personal Characteristics of Entrepreneurs
❖ Prior Experience
❖ Cognitive Factors ( Understand the business environment and
customers’ perceptions )
❖ Social Networks
❖ Creativity
❖ Etc.
How Entrepreneurs Identify (Contd.)
4. Unexpected Occurrences - Successes or failures that as they were
un-anticipated or unplanned, often prove to be a major innovative surprise to
the society
5. Identify the Market Changes
❖ Changing the customers’ attitudes
❖ Advancement of the technology
❖ Industry growth
❖ Change the market
How Entrepreneurs Identify (Contd.)
6. Demographic Changes-
❖ Changes in population, age, education, occupation, geographic
locations etc.
7. Perceptual Changes
❖ Changes in the people’s interpretation of facts and concepts
(Growing concern for fitness )
How Entrepreneurs Identify (Contd.)
8. Knowledge based concepts.
❖ These are the basis for the creations or development of something
brand new where inventions are knowledge based.
❖ Often require a considerable time period to invent, testing and market
implementation.
( TV technology, Mobile pone technology, Robotics Technology)
How Entrepreneurs Identify (Contd.)
Factors Influencing Opportunity Exploration
 Opportunity Vs. Idea
❖ An idea Is a thought, impression or notion.
❖ It may not meet the criteria of an opportunity.
❖ Many businesses fail not because the entrepreneurs that started
them didn’t workhand, but rather because there was no real
opportunity.
 Ideas are not the Same as Opportunities
❖ An idea Is a thought, impression or notion.
❖ It may not meet the criteria of an opportunity.
❖ Many businesses fail not because the entrepreneurs that started
them didn’t workhand, but rather because there was no real
opportunity.
 Ideas vs. opportunities
Idea Opportunities
❖ Last for ever ❖ are perishable
❖ are free ❖ require work
❖ everybody has ideas
❖ require fit
❖ Do not need customers survive
❖ must create customer value
Characteristics of good opportunities
❖ Attractive
❖ Durable
❖ Timely
❖ Anchored in a product or a business that creates value for its
buyer or end use
End of Lecture 2

37
 Innovation and Entrepreneurship

Lecture 3: Inside the Entrepreneurial Mind: From Ideas to Reality

Department of Information and Communication Technology

 Outline of the Lecture
❖ Definition of the creativity and innovation
❖ Can we learn to be creative
❖ How human brain works for innovation
❖ Elements for creativity
 Creativity and Innovation
Creativity – the ability to develop new ideas and to discover
new ways of looking at problems and
opportunities.
Innovation – the ability to apply creative solutions to
problems or opportunities to enhance or to
enrich people’s lives.
 Failure: Just Part of the Creative Process!
For every 3,000 new product ideas:
❖ Four make it to the development stage.
❖ Two are actually launched.
❖ One becomes a success in the market.
On average, new products account for 40% of companies’ sales!!
 Can We Learn to Be Creative?

Yes!!

By overcoming paradigms and by suspending conventional

thinking long enough to consider new and different alternatives!
 Right-Brained, Creative Thinkers
❖ Always ask, “Is there a better way?”
❖ Challenge custom, routine, and tradition.
❖ Are reflective. (deep thought)
❖ Are prolific thinkers. (Productive, creative, innovative)
❖ Play mental games.
Right-Brained, Creative Thinkers (Contd.)
❖ Realize that there may be more than one “right” answer.
❖ See mistakes as pit stops on the way to success.
❖ Relate seemingly unrelated ideas to a problem.
❖ Have “helicopter skills.”
Right-Brained, Creative Thinkers
❖ Understand that failure is a natural part of the creative
process.
❖ Relate seemingly unrelated ideas to a problem.
 Left-Brained or Right-Brained?
Entrepreneurship requires both left- and right-brained thinking.
❖ Right-brained thinking draws on divergent reasoning, the ability to create a
multitude of original, diverse ideas.
❖ Left-brained thinking counts on convergent reasoning, the ability to
evaluate multiple ideas and to choose the best solution to a problem.
 Linear
Creat ivit y
(Logic/Knowledge)
Focus

Dept h

Sk ills

Hard Work

Experience
Lat eral Creat ivit y Growt h
(Intuitive/Imagination)
Breadt h I nnovat ion Uniqueness Expansion

Analogies Out -of-t he-Box Non-Logic

 Elements of Creativity
❖ Unique (original)
❖ Valued (useful)
❖ Intent (purpose)
❖ Continuance (implementation excellence)
Questions to Spur the Imagination
❖ Is there a new way to do it?
❖ Can you borrow or adapt it?
❖ Can you give it a new twist (turn)?
❖ Do you merely need more of the same?
❖ Do you need less of the same?
Questions to Spur the Imagination (Contd.)
❖ Is there a substitute?
❖ Can you rearrange the parts?
❖ What if you do just the opposite?
❖ Can you combine ideas?
❖ Can you put it to other uses?
Questions to Spur the Imagination (Contd.)
❖ What else could you make from this?
❖ Are there other markets for it?
❖ Can you reverse it?
❖ Can you eliminate it?
❖ Can you put it to another use?
❖ What idea seems impossible, but if executed, would
revolutionize your business?

2 - 15
Tips for Enhancing Organizational Creativity
❖ Include creativity as a core company value
❖ Embrace diversity.
❖ Expect creativity.
❖ Expect and tolerate failure.
❖ Create an organizational structure that nourishes creativity.
❖ Encouraging creativity
❖ Encourage curiosity (interest)
❖ Create a change of scenery periodically

2 - 16
Tips for Enhancing Organizational Creativity
(Contd.)
❖ View problems as opportunities
❖ Provide creativity training
❖ Provide support
❖ Develop a procedure for capturing ideas
❖ Viewing problems as challenges
❖ Providing creativity training
❖ Providing support
❖ Modeling creative behavior
Tips for Enhancing Organizational Creativity
(Contd.)
❖ Talk and interact with customers
❖ Look for uses for your company’s products or services in other
markets
❖ Reward creativity
❖ Model creative behavior
Tips for Enhancing Individual Creativity
❖ Allow yourself to be creative
❖ Give your mind fresh input every day
❖ Observe the products and services of other companies,
especially those in completely different markets
❖ Recognize the creative power of mistakes
❖ Notice what is missing
Tips for Enhancing Individual Creativity
❖ Keep a journal to record your thoughts and ideas
❖ Listen to other people
❖ Listen to customers
❖ Talk to a child
❖ Do something ordinary in an unusual way
Tips for Enhancing Individual Creativity
❖ Keep a toy box in your office
❖ Do not throw away seeming “bad” ideas
❖ Read books on stimulating creativity or take a
class on creativity
❖ Take some time off
❖ Be persistent
 Increasing Personal Creativity
❖ Idea file or notebook
❖ Network
❖ Read voraciously
❖ Think in opposites
❖ Look for new uses for old things
 Barriers to Creativity
❖ Searching for the one “right” answer
❖ Focusing on “being logical”
❖ Blindly following the rules
❖ Constantly being practical
❖ Viewing play as frivolous
 Barriers to Creativity
(continued)
❖ Becoming overly specialized
❖ Avoiding ambiguity
❖ Fearing looking foolish
❖ Fearing mistakes and failure
❖ Believing that “I’m not creative”
Tips for Enhancing Individual Creativity
❖ Allow yourself to be creative
❖ Give your mind fresh input every day
❖ Keep a journal handy to record your thoughts and ideas
❖ Read books on stimulating creativity
❖ Take some time off
 The Creative Process
Preparation Investigation Transformation

Incubation Illumination Verification

Implementation
 The Creative Process
Preparation Investigation Transformation

Incubation Illumination Verification

Implementation
 Preparation
Get your mind ready for creative thinking.
❖ Adopt the attitude of a lifelong student.
❖ Read … a lot … and not just in your field of
expertise.
❖ Clip articles of interest to you and save them.
❖ Take time to discuss your ideas with other people.
 Preparation

Get your mind ready for creative thinking.

❖ Join professional or trade associations and attend
their meetings.
❖ Study other countries and their cultures.
❖ Travel to new places.
❖ Develop your listening skills.
❖ Eliminate creative distractions.
 The Creative Process
Preparation Investigation Transformation

Incubation Illumination Verification

Implementation
 The Creative Process
Preparation Investigation Transformation

Incubation Illumination Verification

Implementation
 Transformation
Involves viewing both the similarities and the differences among the
information collected.
Two types of thinking are required:
❖ Convergent – the ability to see the similarities and the
connections among various and often diverse data and events.
❖ Divergent – the ability to see the differences among various
data and events.
 Transformation
How can you transform information into purposeful ideas?
❖ Grasp the “big picture” by looking for patterns that emerge.
❖ Rearrange the elements of the situation.
❖ Use synectics, taking two seeming nonsensical ideas and
combining them.
❖ Remember that several approaches can be successful. If one
fails, jump to another.
 The Creative Process
Preparation Investigation Transformation

Incubation Illumination Verification

Implementation
 Incubation
Allow your subconscious to reflect on the information collected.
❖ Walk away from the situation.
❖ Take the time to daydream.
❖ Relax – and play – regularly.
❖ Dream about the problem or opportunity.
❖ Work on the problem in a different environment.
 The Creative Process
Preparation Investigation Transformation

Incubation Illumination Verification

Implementation
 The Creative Process
Preparation Investigation Transformation

Incubation Illumination Verification

Implementation
 Verification
Validate the idea as accurate and useful.
❖ Is it really a better solution?
❖ Will it work?
❖ Is there a need for it?
❖ If so, what is the best application of this idea in the marketplace?
❖ Does this product or service fit into our core competencies?
❖ How much will it cost to produce or to provide?
❖ Can we sell it at a reasonable price that will produce a profit?
 The Creative Process
Preparation Investigation Transformation

Incubation Illumination Verification

Implementation
End of Lecture 3

40
 Innovation and Entrepreneurship
Lecture 6: Innovation Types

Department of Information and Communication Technology

 Outline of the Lecture

❖ Different Types of Innovation

❖ What is Invention and Innovation
❖ Innovation Categories
❖ Open and closed innovation
❖ Innovation Dimensions
❖ Company Innovation Potentials
 A broader classification of Innovation

Classification by Schumpeter 4 Ps of Innovation - Classification

1. Product 1. Product
2. Process 2. Process
3. Input 3. Position
4. Technology 4. Paradigm
5. Organization
Innovation Categories

Innovation

Sustaining Disruptive
 Sustaining Innovation

❖ Sustaining
✓ better products that can be sold with higher margin
to demanding customers; incumbents win.
✓ focused on demanding customers; both incremental
and radical.
 Disruptive Innovation

❖ Disruptive
✓ commercialization of simpler, more user-friendly
products, which are cheaper and targeted to new or
less demanding customers; new entrants win.
✓ introduce products and services not as advanced as
existing ones, but offering other advantages
(simpler, cheaper, more user friendly, ...) and focus
on new or less demanding customers.
.
The Disruptive Innovation Model

Clayton M. Christensen: The Innovator´s Solution, Harvard Business Press, 2003

 Two types of disruption

❖ New markets: compete with non-consumption:

simpler, more user friendly, can be used by less
sophisticated customers (PC, transistor radio, desk
copiers).
❖ Low-end: focus on lower tiers of main markets
(minimills, discount stores, Korean auto-makers);
motivate incumbents to leave the market
Open and Closed Innovation
 Open and Closed Innovation

Open Innovation
The new imperative for creating and profiting from
technology. The concept is related to user innovation,
cumulative innovation, Know-How Trading, mass
innovation and distributed innovation.
Open Innovation (Contd.)
 Closed Innovation
Innovation happened in closed environments often
performed by individuals, scientists or employees.
 Comparison Between closed and
Open Innovation

Closed innovation Open innovation

All the best people are working for us Not all the best people are working for them . They must
work with clever people within and outside their company.

R&D creates profit only when they invent, develop and External R&D can create remarkable value; to employ it,
market everything themselves. they need absorption capacity, often as internal R&D.

If they develop the product themselves, they will be the R&D can create profit even if they do not initialize and
first on the market. perform it themselves.

Winner is who gets the innovation to the market first. To develop better business model is more important than to
be the first in the market.

They will win if they develop most of the ideas (an the They will win if they make best use of internal and
best of them). external ideas.

They must have their intellectual property under control so They must be able to profit from others using their
that their competitors can make advantage of it. intellectual property and they must license the intellectual
property if it supports our business model.
 Comparison Between closed and
Open (Contd.)

Closed innovation Open innovation

Examples: nuclear industry, mainframe computers Examples : PC, movies

Mostly internal ideas Many external ideas

Low workforce mobility High workforce mobility

Low role of the venture capital Active venture capital

Few new businesses, weak ones Many new businesses

Universities are not important as the sources of ideas Universities are not important as the sources of ideas
and people
Company innovation potentials
 Company Innovation Potentials

❖ A company with high innovation potential scores

high in the following areas:
❖ Strategy and planning.
❖ Marketing.
❖ Technological process.
❖ Quality management.
❖ Logistics.
❖ Human resources.
 Innovation Dimension

New
Modified Technology
Technology

Modified Benefits for

user

New benefits for user

Radical & Incremental Innovation
 Radical Innovation

❖ Radical innovation upsets the organization’s or the

industry’s existing business model
❖ Disruptive technologies displaces the established
technology 24
 Radical Innovation

A broader classification
❖ It is something new to the world
❖ Breakthrough Innovation and Discontinuous
Innovation are synonyms
❖ The term “Disruptive Technology” is used to identify
radical technical innovations.
 Radical Innovation

Radical innovation can be defined as an innovation with one or more

of the following characteristics
❖ An entirely new set of performance features
❖ Improvements in known performance features of five times or
greater 25

❖ A 30% or greater reduction in cost

❖ Changes the basis of competition
 Incremental Innovation

Exploits existing forms or technologies

• It either improves upon something that already exists or
reconfigures an existing form or technology to

serve some other purpose Core i7

Extreme Edition

Core i7

Core i5
Core i3
26
An Industry Time Line of Radical &
Incremental Improvement

Performance
/ Cost Radical
improvemen ts Innovations

Small
Incremental
Improvements

Time
3
 Compact Fluorescent Light (CFL) Light-Emitting Diodes (LED)
Incandescent Bulb
 Characteristics of Successful Innovation

❖ Systematic collection of all impulses (urges) that could

lead to innovation.
❖ Creativity of employees.
❖ Ability to evaluate the possibility of the innovation
ideas.
❖ Good teamwork.
❖ Project-based approach and ability to manage projects.
 Characteristics of Successful Innovation
(contd.)
❖ Cooperation with external experts (universities, research
laboratories…).
❖ Proper rate of risk-taking.
❖ Employees’ motivation (the employees are willing to
improve the product and the operation of the whole
company).
❖ Continued education of employees.
❖ Ability to finance the innovation activities.
 Other Types of Innovation

Technology

EDI System

Holographic technology
37
 Types of Innovation…

• Organization

XTI Air craft

38
 Types of Innovation…

Apple AirPods
4 Ps of innovation
1. Product Innovation
Improves a current product that is already offered to the user

2. Process Innovation
Innovates the way in which products are created and/or
delivered to the user

39
 Types of Innovation (Contd.)

4 Ps of innovation
3. Position Innovation.
This involves relocation of the user’s perception about a certain
product

4. Paradigm Innovation.
This relates to the mental models, which define what a certain
business is all about Business would be redefined

40
Detailed Innovation Process

Research

Discovery

Development

Patenting and Approval

Production

Marketing

Adoption
End of Lecture - 6
System thinking & System dynamics for
Innovation and tech startup
Thilanka Ariyawansha
Ph.D.(Japan), MSLIAg
Department of Agricultural Technology, Faculty of Technology, University of Colombo
thilanka@at.cmb.ac.lk / ktariyawansha@gmail.com
Understand the domain of technology

Food and Agriculture

Healthcare
Transport & Logistics
Public administration
Energy
Environment &
Sustainability
Why is System
thinking, and
System dynamics
more important in
business?
Blockbuster: Once a dominant force in the video rental industry, Blockbuster
failed to innovate and adapt to the shift towards online streaming services like
Netflix. Blockbuster declared bankruptcy in 2010.
Inventor of the first self-
contained digital camera.
1975

Kodak: Kodak, a pioneer in the photography industry, struggled to adapt to the

digital photography revolution. Despite inventing the digital camera in 1975,
Kodak failed to capitalize on this innovation and continued to focus on film-
based products. Eventually, the company filed for bankruptcy in 2012.
Borders: This major bookstore chain underestimated the rise of online retail
giants like Amazon. Borders also failed to adapt to the popularity of ebooks,
another factor that contributed to their decline and eventual bankruptcy
Source : https://www.techlaco.com/2022/03/the-rise-and-fall-of-
nokia-and-ceo-that.html
After One Year
Technology decision important for,
1.Competitive Advantage: In many industries, technology can be a significant source of competitive
advantage. Adopting the right technologies can enable companies to streamline operations, improve
efficiency, reduce costs, and deliver better products or services than their competitors.
2.Innovation: Technology is often the catalyst for innovation. By investing in the right technologies,
companies can develop new products, services, or business models that disrupt the market and
create new opportunities for growth.
3.Customer Experience: Technology plays a crucial role in shaping the customer experience. From
user-friendly websites and mobile apps to advanced customer relationship management (CRM)
systems, technology enables companies to deliver personalized, convenient, and seamless
experiences to their customers.
4.Data-driven Decision Making: In today's digital age, data is a valuable asset. Technology allows
companies to collect, analyze, and derive insights from vast amounts of data, enabling data-driven
decision-making that can drive business growth and competitive advantage.
5.Scalability and Flexibility: The right technology infrastructure can support business
scalability and flexibility. Whether it's cloud computing, software-as-a-service
(SaaS) solutions, or scalable hardware platforms, technology decisions can
determine a company's ability to adapt to changing market conditions and scale
operations efficiently.
6.Risk Management: Technology decisions also impact a company's risk profile. Poorly
implemented or outdated technologies can expose companies to cybersecurity
threats, compliance risks, and operational disruptions. Investing in robust
cybersecurity measures, up-to-date software, and reliable IT infrastructure is
essential for mitigating these risks.
7.Cost Management: While technology investments can be significant, they can also
lead to cost savings in the long run. By automating manual processes, optimizing
workflows, and improving productivity, technology can help companies reduce
operational costs and improve profitability.
Role of System Dynamics For Technology Decision
System
• Group of many elements or parts within the known
boundary
• Interrelated in a nonlinear way as a multi-dimensional
connection
• Adapted to do some specific task
• The task depends on the system boundary

Dynamics
• Changes the status of the system, element, or parts
over time
specific task - transport
 camshaft cooling system
lubrication system
piston
spring fuel system
valve-train
control

engine
Car is sub-system within the
Transport system selected boundary of the transport
transmission system

chassis

safety
System Thinking
Analytical vs Synthesis
 System Dynamics
• Changes in the structured elements surrounded
by the known boundary
• Introduced by Jay Wright Forrester (MIT USA,
1950’s)
• System dynamics is a methodology used as a link
between the mental model and simulation model Jay W. Forrester
using mathematics and simulating it over time 1918 – 2016
System dynamics Process
As explained by Forrester, 1994, there are six steps in the system dynamics process,
Causal loop

Graphical representation of the interrelationship between each element

Innovation Tools
are
techniques,
frameworks,
or methodologies
that help organizations
generate new ideas,
improve processes, or
develop new products and
services.
• General Innovation Tools are often used in the early stages of
projects, during brainstorming sessions, or when seeking to generate
new ideas.
• Product Innovation Tools are essential for product development
teams and are used throughout the product lifecycle, from idea
generation to prototyping and testing.
• Process Innovation Tools are used by operations and quality
improvement teams to streamline workflows and enhance process
efficiency.
• Managerial Innovation Tools are employed by leadership teams and
managers to implement changes that foster a supportive culture for
innovation.
 General Innovation Tools
Brainstorming: A group creativity
technique where participants generate a
large number of ideas in a short amount
of time to encourage free thinking and
creativity.
Mind Mapping: A visual tool used to organize and represent ideas
and information in a hierarchical or non-linear manner, facilitating
brainstorming and problem-solving.
A human-centered approach to innovation that focuses on understanding the
needs of users, generating creative solutions, and prototyping and testing ideas
iteratively. https://www.interaction-design.org/literature/topics/design-thinking
SWOT Analysis
A strategic planning tool
used to identify Strengths,
Weaknesses, Opportunities,
and Threats related to a
project or organization,
helping to uncover areas for
innovation and
improvement.
 TRIZ (Theory of
Inventive Problem
Solving)
• A systematic approach to
problem-solving that uses
patterns of invention
derived from analysis of
patents to find creative
solutions.

40 TRIZ Principles
https://www.triz40.com/aff_Principles_TRIZ.php
Product Innovation Tools
Voice of the Customer (VoC)
Collecting customer feedback through
surveys, interviews, or focus groups to
guide product development decisions.
Quality Function
Deployment (QFD)
Translates customer requirements
into product design features and
helps prioritize them to ensure that
the final product aligns with
customer needs.
House of Quality
House of Quality is a
structured, visual approach
that transforms what
customers want into
technical specifications,
providing a roadmap for
developing products that
truly meet customer
demands.
Prototyping
Creating early models or
samples of a product to
test its design,
functionality, and usability.
Prototypes allow for
iterative testing and
refinement before full-
scale production.
Rapid Prototyping
Utilizing advanced
technologies like 3D
printing to quickly produce
prototypes, enabling faster
feedback loops and
development cycles.
Stage-Gate Process
A step-by-step framework
for managing the
development of new
products, where each
"stage" represents a phase
of development (e.g.,
concept, design, testing),
and each "gate" is a decision
point for continuing or
halting the project.
Managerial Innovation Tools
Balanced Scorecard
A management tool that tracks organizational performance against strategic
objectives across various perspectives (financial, customer, internal processes, and
learning/growth).
Leadership Development Programs
Training programs aimed at enhancing leadership skills to foster a culture of
innovation and empower teams to take initiative.
Strategic Planning Tools (e.g., PESTEL Analysis)
Analyze external factors such as Political, Economic, Social, Technological,
Environmental, and Legal aspects that may impact organizational strategy and
innovation efforts.
Change Management: A structured approach to transitioning
individuals, teams, and organizations from their current state to a
desired future state, effectively managing resistance to change.
Open Innovation Platforms: Platforms that
facilitate collaboration and idea-sharing between internal teams,
external partners, and even customers to generate new ideas • Innocentive
• Yet2
and solutions.
• NineSigma
• Ideawake
• HeroX
• Spigit
• Topcoder
• OpenIDEO
• MindSumo
• Edison Nation
Process Innovation Tools
Lean Six Sigma
Combines Lean principles
(focused on reducing
waste) with Six Sigma
(focused on reducing
variation) to improve
process efficiency and
quality.
Total Quality
Management (TQM)
An approach that emphasizes
continuous improvement,
employee involvement, and
customer focus to improve
overall quality within the
organization.
Kaizen
A continuous improvement
philosophy that encourages
small, incremental changes to
processes to improve efficiency
and quality over time.
Value Stream
Mapping (VSM)
A visual tool that
helps map out the
steps in a process to
identify areas of
waste or inefficiency
and suggest
improvements.
Business Process
Reengineering (BPR)
The radical redesign of
business processes to
achieve dramatic
improvements in cost,
quality, service, and speed.
Scenarios
Planning
A strategic planning tool
used to anticipate and
plan for future
uncertainties by
developing and analyzing
multiple plausible future
scenarios and their
implications.
Technology
Audit
Assessing an
organization's current
technology
infrastructure,
systems, and
processes to identify
strengths,
weaknesses,
opportunities, and
threats related to
technology usage.
Technology Forecast
Predicting future trends and developments in technology to anticipate changes in
the market, industry, or consumer behavior and prepare accordingly.
Benchmarking
Comparing your
organization's processes,
products, or services to
those of competitors or
industry leaders to identify
areas for improvement and
best practices.
.
Questions?
Product Design and Development
Thilanka Ariyawansha
Ph.D.(Japan), MSLIAg
Department of Agricultural Technology, Faculty of Technology, University of Colombo
thilanka@at.cmb.ac.lk / ktariyawansha@gmail.com
Characteristics of Successful Product Development
Product Quality: Reflects how well the product meets customer needs, affects
market share, and influences pricing.
Product Cost: Includes manufacturing, equipment, and per-unit expenses,
directly impacting profitability.
Development Time: Determines responsiveness to competition, tech changes,
and time-to-market for revenue.
Development Cost: A significant part of the investment required for
profitability.
Development Capability: Enhanced by team experience, affecting future
product development efficiency and costs.
Other Stakeholder Interests: Include team creativity, community job creation
concerns, safety standards, and ecological impact beyond strict profitability
considerations.
 Product development is an interdisciplinary activity requiring
contributions from nearly all the functions of a firm; however, three
functions are almost always central to a product development project:

Who Marketing:

Designs
• Mediates interactions with customers.
• Identifies product opportunities, market segments, and customer needs.
• Manages communication, pricing, product launch, and promotion.

and Design:

Develops
• Defines the physical form of the product to meet customer needs.
• Includes engineering design (mechanical, electrical, software) and industrial design
(aesthetics, ergonomics, user interfaces).

Manufacturing:
Products? • Designs, operates and coordinates production systems.
• Includes purchasing, distribution, and installation (part of the supply chain).
The composition of
a product
development team
for an
electromechanical
product of modest
complexity.
 Trade-offs: Balancing factors like weight and cost is
crucial but complex.

Dynamics: Constant changes in tech, preferences,

competition, and economy make decision-making tough.

Challenges in Details: Small choices, like fasteners, can have major

cost implications.
Product
Development
Time pressure: Decisions must be quick despite
incomplete information.

Economics: Products must be cost-effective while

meeting customer needs.
 Creation: From idea to physical product,
it's a highly creative process.

Satisfaction of needs: Products aim to

Appeal of fulfill important needs, driving interest.

Product Team diversity: Diverse skills and

Development perspectives lead to successful
development.
Team spirit: Motivated teams foster
camaraderie and focus on product
creation.
Process Importance of a Well-Defined Process
• Sequence of steps transforming • Quality Assurance
inputs to outputs • Specifies phases and checkpoints
• Includes physical and intellectual • Ensures product quality
activities • Coordination
Product Development Process • Defines roles and responsibilities
• Facilitates team collaboration
• Sequence for conceiving,
designing, and commercializing a • Planning
product • Sets milestones for project completion
• Varies widely between • Anchors project schedule
organizations and projects • Management
• Acts as a benchmark for performance assessment
• Identifies problem areas
• Improvement
• Allows for ongoing review and optimization
• Identifies opportunities for enhancement
 Concept
Planning
Development

Product
System-
development Level Design
Detail Design
process
Testing and Production
Refinement Ramp-Up
Product Development
Organizations

Structures and setups

within companies or teams
responsible for conceiving,
designing, developing, and
launching new products or
improving existing ones.
 Functional Project Light-Weight Heavy-Weight
Characteristic
Organization Organization Matrix Matrix

Primary Functional Project Functional Project

Authority Managers Managers Managers Managers

Resource Within Dedicated to Shared between More dedicated

Allocation departments projects functions to projects

Communication Vertical within Horizontal within

Mixed More horizontal
Flow departments project
Balance of
Functional
Focus Project goals functions/projec Project goals
expertise
ts
Employee Functional More dedicated
Project teams Split
Commitment departments to projects
Choosing an Organizational Structure
Depends on critical organizational performance factors.

Functional Organizations
• Specialization and deep expertise in functional areas.

Project Organizations
• Rapid and effective coordination among diverse functions.

Matrix Organizations
• Hybrid with characteristics of both functional and project structures.
Guiding Questions for Organizational Structure Choice
• How important is cross-functional integration?
• Functional: Difficulty in coordinating cross-functional decisions.
• Project: Strong cross-functional integration due to organizational links.

• How critical is cutting-edge functional expertise to business success?

• Critical for long-term success, requires functional links.
• Example: Aerospace companies prioritizing critical expertise areas.

• Can individuals from each function be fully utilized for most of the duration of a
project?
• Efficient use of resources across projects.
• Example: Industrial designers utilized as needed across projects.

• How important is product development speed?

• Project organizations resolve conflicts quickly and coordinate efficiently.
• Example: Consumer electronics teams organized by project for speed.
Questions?
 CleanStart
Management Flight
Simulator
John Sterman
Jay W. Forrester Professor of Management
Professor of Engineering Systems
Director MIT System Dynamics Group
MIT Sloan School of Management
 Developed by Powered by Forio Financial Support:
John Sterman
http://forio.com Mary Ann Beyster and
Jay W. Forrester Professor of Management the Foundation for
Director MIT System Dynamics Group Forio Team:
Director, MIT Sloan Sustainability Initiative Enterprise Development
MIT Sloan School of Management Michael Bean (http://www.fed.org/)
Narendran Ranjit
Keith Eubanks Project on Innovation in
Principal, Dynamic Forecasting Philip George
Federico Pasumbal Markets and
Joe Hsueh Organizations, MIT
President, Systemica Sloan School of
Management
David Miller
Executive Managing Director
Clean Energy Venture Group cevg.com MIT Sloan School of
Management
Why CleanTech?
 Global Human Ecological Footprint
Number of
Earths used
by humanity

Wackernagel et al. (2002) Tracking the ecological overshoot of the

human economy. Proc. Nat. Acad. Sci., 99(14): 9266-9271, as
updated: http://www.footprintnetwork.org
 Better Mousetrap
Theory of
Innovation
Diffusion
Mousetrap, 1870, John O. Kopas
(Inventor), George W. Bauer (Inventor),
Smithsonian American Art Museum, Gift
of Alan and Ann Rothschild, 2011.37.15
Source: http://eyelevel.si.edu/2011/12/mousetrap-
101-patents-and-innovation-with-collector-alan-
rothschild-.html
 High Adoption Low
Quality of Innovation Sony BetaMax Vaccines

High
Hand Washing

Dvorak
Keyboard

Astrology
Subprime
Low

Mortgages,
CDOs, CDSs, etc.

Garlic ’58 Edsel

QWERTY
Keyboard Cake Edible Deodorant
(no picture available)
Fads & Frauds too numerous to list Source: Museum of Failed Products
Cost of Greenhouse Gas Emissions Abatement

Negawatts
(Negative Cost)
Source: McKinsey
 The Challenge
• Clean energy technologies need to be widely adopted to
address climate change, energy security and sustainability
• New ventures will be the primary means of commercializing
clean energy technologies
• Clean energy ventures fail at a higher rate than comparable
ventures in other industries
→ Why do they fail?
→ What policies can help them succeed?
→ How can entrepreneurs increase their odds of success?
 What’s different about CleanTech?
• Unfamiliarity
– Complex value proposition & products
– Risk averse customers
• Uncertainty
– NPV/ROI of adoption depends on uncertain, volatile energy prices
– Product and Vendor risks
• Market Failures
– Behavioral biases, e.g., up front costs loom large even if positive NPV/high ROI/short
payback times
– Access to capital, e.g., individuals can’t borrow at low rates available to corporations
– Principal-Agent problem, e.g., Landlord-Tenant problem
– Tragedy of the Commons, e.g., Negative externalities of fossil fuels, pollutants not
captured in market prices
• Entrenched competition with deep pockets
– Regulatory capture
– Infrastructure lock in
 Typical Entrepreneur’s Business Plan

Working
Capital

0
0 1 2 3 4 5 6
Years
 Typical Entrepreneur’s Business Plan

Working
Capital

0
0 1 2 3 4 5 6
Years
 Typical Entrepreneur’s Business Plan

Working
Capital

0
0 1 2 3 4 5 6
Years
 More Common:
Stuck in the “Valley of Death”

Working
Capital

0
0 1 2 3 4 5 6
Years
 More Common:
Stuck in the “Valley of Death”

Working
Capital

0
0 1 2 3 4 5 6
Years
 Modeling a Clean Tech Startup
• System dynamics simulation model based on:
– SD research on product development, human
resource dynamics, market structure,
competition, finance, etc. (See Sterman,
Business Dynamics)
– Interviews with many entrepreneurs and
investors
– Experience working directly with clean energy
companies
 Model Boundary
Business Processes Customers
1. Miller (2007)
- Product development - Prospect/customer chain
- Customer service - Product attractiveness
- Sales effort - Pricing
Model calibrated
- Marketing effort - Brand equity to typical clean
- Competition tech startups
5. Sterman (2000)
Endogenous
6. Hsueh (2011)

Exogenous Human Resources Finance

Compensation - Balance sheet
3. Oliva, Sterman
- Hiring & Employee chain
- Work experience - Income statement and Giese (2003)
- Salary - Cash flow
- Employee quality - Firm valuation
- Stock grants
- Employee participation - Shares outstanding 4. Finance and
- Stock options
- Job satisfaction - Ownership structure
- Profit sharing
- Productivity - Venture capital Accounting Literature
Product Development
 Sales Cycle
Sales Effort

+
+
Prospect Hot Prospect
Generation + Sales
Generation
Rate Rate Rate
Potential Hot Customers
Prospects
Customers Prospects

Potential
Prospect Hot Prospect Poaching
Customers
Loss Rate Loss Rate Rate
Loss Rate
Example: Hope Energy (South Africa)

Time
Example: Building Energy Management Systems
Systems Integration

Dynamic Models &

Machine Learning
Sensors and controls

Fluid Conservation Systems

www.fluidconservation.com
www.mcs.anl.gov/~vzavala/
proactivebuildings.html

www.ocube.co.kr/images/s04/3img_01.jpg
 Your Startup
• Your instructor may create different scenarios
and assumptions
• Base case: Typical clean energy venture poised
for success
– High value product sold to commercial customers and
ready for market
– Superior features at lower cost than competitors
– Market is accessible and good prospects readily identified
– Engineers and sales reps learn & become more
productive over time
– Substantial initial capital from friends & family
CleanStart Simulator: Decision Variables

 Pricing  Financing
◼ VC financing
 Headcount ◼ IPO
◼ Headcount growth
rate  Compensation
◼ Employee ◼ Salary
allocation: ◼ Stock options
engineers vs. sales ◼ Stock grants
◼ Profit Sharing
 Critical Questions
• What are the dynamics of clean technology
startups and how can their odds of success be
improved?
– Pricing strategy
– Staff growth and mix (engineering vs. sales)
• How might different ownership structures affect
employee behavior and firm performance?
– Traditional external funding (e.g. VC
financing)
– Employee ownership (partial or full)
 Caveat
• The particular assumptions used are typical of
clean tech ventures
BUT
• The model is not meant to be predictive of the
performance of any particular venture
• The model is meant to provide insights into
which management strategies and government
policies are most effective
http://mitsloan.mit.edu/learningedge

Good Luck
 Marketing Concept
and
Marketing Planning

Eng. Rajitha Ariyaratne (B.Sc. (Chemical and Process Engineering), M.Phil., AMIESL)
The Marketing Concept
• The central idea of marketing
is a matching between a
company’s capabilities and the
needs of customers to achieve
the objectives of both parties.

• The marketing concept implies

that all the activities of an
organization are driven by a
desire to satisfy customer
needs.
Different Marketing Strategies

Tata Nano Rolls Royce Porsche Toyota

Cheap Luxury Sport Reliability

Different Marketing Strategies
1. Coca-Cola: Brand Consistency

2. Apple: Creating Movement

3. Colgate: Create trust

4. Starbucks: Social Strategy

5. Nike: Sell a story

The Marketing Process
• Defining markets.
• Quantifying the needs of the customer groups (segments) within these markets.
Determining the value propositions to meet these needs.
• Communicating these value propositions to all those people in the organization responsible
for delivering them and getting their buy-in to their role.
• Playing an appropriate part in delivering these value propositions (usually only
communications).
• Monitoring the value actually delivered.

Map of marketing process

Business Success

Elements of Business Success

Marketing Environment

1. The capabilities of a firm.

2. The wants of customers.
3. The marketing environment.
Customer Requirement
• Colgate, Nestlé, Johnson & Johnson, Procter & Gamble, General Electric and
other long-standing great companies create shareholder value by applying the
following values:
• an inspiring vision;
• clear strategies;
• rigorous segment and brand positioning;
• consistent innovation;
• superior customer value;
• high employee morale;
• tight cost control;
• concern for all stakeholders, not just customer groups.
Customer Requirement
• Cheapness, efficiency, quality (in the sense of international standards such as ISO) or,
indeed, any other measure, are not criteria of effectiveness, since there is little point in
producing anything cheaply, efficiently or perfectly if people don’t actually want it and
don’t buy it.
• In the commercial sector, research has shown that there is a direct link between long-run
profitability and the ability of a firm to understand its customers’ needs and provide value
for them.
• For industries previously protected from competition, such as the airline industry and
telecommunications, many now know that sustainable profitability can only come in the
long run through continuous customer satisfaction.
Marketing Planning
• Marketing plan is the planned application of resources to achieve marketing objectives.
• Marketing planning, then, is simply a logical sequence and a series of activities leading to
the setting of marketing objectives and the formulation of plans for achieving them.
• Companies generally go through some kind of management process in developing
marketing plans.
• In small, undiversified companies, this process is usually informal.
• In larger, more diversified organizations, the process is often systematized.
• Conceptually, this process is very simple and involves a situation review, the formulation
of some basic assumptions, setting objectives for what is being sold and to whom,
deciding on how the objectives are to be achieved, and scheduling and costing out the
actions necessary for implementation.
Why Marketing Planning is Important?
• Maximizing revenue
• Maximizing profits
• Maximizing return on investment
• Minimizing costs
• Each one of these has its own special appeal to different managers within the company,
depending on the nature of their particular function.
• In reality, the best that can ever be achieved is a kind of ‘optimum compromise’,
because each of these objectives could be considered to be in conflict in terms of
equivalences.
The Effectiveness of Marketing Planning is Important?
• The systematic identification of emerging opportunities and threats
• Preparedness to meet change
• The specification of sustainable competitive advantage
• Improved communication among executives
• Reduction of conflicts between individuals and departments
• The involvement of all levels of management in the planning process
• More appropriate allocation of scarce resources
• Consistency of approach across the organization
• A more market-focused orientation across the organization
Marketing Planning Process
1. Mission statement
The following should appear in a mission or purpose statement, which should normally run to
no more than one page:
1. Role or contribution
profit (specify), or
service, or
opportunity seeker
2. Business definition – define the business, preferably in terms of the benefits you provide
or the needs you satisfy, rather than in terms of what you make.
3. Distinctive competencies – these are the essential skills/capabilities resources that
underpin whatever success has been achieved to date. Competence can consist of one
particular item or the possession of a number of skills compared with competitors.
4. Indications for the future
what the organization will do
what the organization might do
what the organization will never do
2. Setting cooperate objectives
What corporate objectives are, and where they fi t in the total process

3. The marketing
audit
4. Market Overview
• This step, which appears prominently in the actual strategic marketing plan, should spell
out clearly:
what the market is
how it works
what are the key decision-making points are
what the segments are

• Market definition is fundamental to success and must be made in terms of need sets
rather than in product/service terms. Thus, Gestetner failed by defining its markets as
‘duplicators’ and IBM almost failed by defining its market as ‘computers’.

• Having done this, a ‘market map’ should be drawn, which plots the flow of goods or
services from supplier through to user, with quantities through the chain that add up to
the market size.
5. SWOT Analysis
• A SWOT is a summary of the audit under the headings, internal strengths and
weaknesses, as they relate to external opportunities and threats.
• A SWOT should be conducted for each segment that is considered to be important in the
company’s future. These SWOT analyses should, if possible, contain just a few paragraphs
of commentary focusing on key factors only.
• They should highlight internal differential strengths and weaknesses of competitors and
key external opportunities and threats.
• A summary of reasons for good or bad performance should be included. They should be
interesting to read, contain concise statements, include only relevant and important
data, and give greater emphasis to creative analysis.
6. Assumptions
• Example

• With respect to the company’s industrial climate, it is assumed that:

1. Industrial overcapacity will increase from 105 per cent to 115 per cent as new industrial
plants come into operation.
2. Price competition will force price levels down by 10 per cent across the board.
3. A new product in the field of x will be introduced by our major competitor before the end
of the second quarter.
7. Marketing objectives and strategies
• An objective is what you want to achieve.
• A strategy is how you plan to achieve your objectives.
• Marketing objectives are simply about one (or more)
of the following:
existing products for existing markets
new products for existing markets
existing products for new markets
new products for new markets.
Marketing strategies are the means by which marketing objectives will be achieved and
generally are concerned with the 4Ps, as follows:
• Product – The general policies for product deletions, modifications, addition, design,
branding, positioning, packaging, etc.
• Price – The general pricing policies to be followed by product groups in market
segments.
• Place – The general policies for channels and customer service levels.
• Promotion – The general policies for communicating with customers under the
relevant headings, such as advertising, social media, sales force, sales promotion,
public relations, exhibitions, direct mail, etc
8. Estimate Expected Results and Identify Alternative
Plans and Mixes
• Having completed this major planning task, it is normal at this stage to employ
judgment, analogous experience, field tests, and so on, to test out the feasibility of
the objectives and strategies in terms of market share, costs, profits, and so on.
• It is also normally at this stage that alternative plans and mixes are considered, if
necessary.

9. The Budget
The incremental marketing expense can be considered to be all costs that are incurred
after the product leaves the factory, other than costs involved in physical distribution,
the costs of which usually represent a discrete subset.
10. First year detailed implementation programme
• A company organized according to functions might have an advertising plan, a sales
promotion plan, a pricing plan, and so on.
• A product-based company might have a product plan, with objectives, strategies and
tactics for price, place and promotion as necessary.
• A market or geographically based company might have a market plan, with objectives,
strategies and tactics for the 4Ps as necessary.
• Likewise, a company with a few major customers might have customer plans. Any
combination of the above might be suitable, depending on the circumstances
Coca-Cola marketing strategy
• Coca-Cola Target Audience
• Age
o Firstly, the company targets young people between 10 and 35. They use celebrities in
their advertisements to attract them and arrange campaigns in universities, schools,
and colleges.
o They also target middle-aged and older adults who are diet-conscious or diabetic by
offering diet coke.
• Income and Family Size
o It introduces packaging and sizes priced at various levels to increase affordability and
target students, middle-class, and low-income families and individuals.
• Geographical segmentation
• Coca-Cola sells its products globally and targets different cultures, customs, and
climates.
Coca-Cola marketing strategy
• Coca-Cola Marketing Channels
• Many different types of marketing channels
• Coca-Cola Marketing Strategy
• Product strategy
• Coca-Cola has approximately 500 products
• Pricing strategy
• It doesn't drop its price significantly, nor does it increase
the price unreasonably
• Place strategy
• Promotion strategy
• spends up to $4 million annually to promote its brand,
utilizing both traditional and international mediums for
advertisements.
• Classic bottle, front and logo
• Localized positioning
• Sponsorships
• Social media
Proforma Marketing Budget
• The proforma marketing budget is a forward-looking financial plan that
estimates the costs and expected revenues for a specific period.
Marketing Planning System

Continued in
the next slide
Marketing Planning System
Strategic Marketing Plan Documentation
Strategic Marketing Plan Documentation
Strategic Marketing Plan Documentation
Strategic Marketing Plan Documentation
Strategic Marketing Plan Documentation
Strategic Marketing Plan Documentation
Strategic Marketing Plan Documentation
Strategic Marketing Plan Documentation
Cash Management and Financial Plan
Cash Management

• Effective cash flow management is essential to the survival of the business.

• It may be even more important than producing goods or services or
generating a sale.
• Most businesses can lose a sale or a customer and still continue operations.
• However, miscalculate the availability of cash when needed, for example,
for payroll or taxes or a critical vendor, and the company may very suddenly
be out of business.
• Cash flow management helps to avoid such operational crises by applying
some basic principles to the business.
Cash Flow
• Cash comes from only four generic sources:
1. Sale of equity. In the form of company stock or ownership of the business
2. Borrowing. From a variety of sources such as financial institutions, friends
and relatives, customers, vendors, or owners
3. Conversion of assets to cash. Sale of idle or unneeded facilities or equipment,
reduction of excess inventory, or collection of accounts receivable
4. Reinvesting profits. Those resulting from real cash collections, not just from
recorded sales that may or may not be collected
Flow of Funds
in a Business
Cash Generation Cycle
Objectives of Cash Management
• Control and track cash flows.
• Optimize sources and uses of cash.
• Maximize revenues and minimize expenditures.
• Collect for sales as quickly as possible.
• Expend cash only where necessary (i.e. for value-added functions and activities only).
• Pay creditors no sooner than necessary, and minimize the costs associated with vendor
purchases and payments.
• Provide for adequate external sources of funding.
• Properly manage external short-term borrowing and/or investment activities.
• Effectively utilize any excess differential cash generated.
• Keep the cash conversion gap at a minimum.
Profitability and Liquidity
• Profitability is making an adequate return on
the capital and assets invested in the
business.
• Liquidity is having an adequate cash flow
that allows the business to make necessary
payments and ensure the continuity of
operations.
Preparing the Statement of Cash Flows
• Income
Statement
Preparing the Statement of Cash Flows
• Balance
Sheet
Preparing the Statement of Cash Flows
• Statement of
Cash Flow
The Financial Planning Process
• Financial planning is an important aspect of the firm’s operations because it provides road maps for guiding, coordinating,
and controlling the firm’s actions to achieve its objectives.
• Long-term (strategic) financial plans lay out a company’s planned financial actions and the anticipated impact of those
actions over periods ranging from 2 to 10 years.
• Short-term (operating) financial plans specify short-term financial actions and the anticipated impact of those actions.
These plans most often cover a 1- to 2-year period.

Short-term (operating) financial plan

Short-Term Financial Planning: Cash Budget
• The cash budget, or cash forecast, is a statement of the firm’s planned inflows and outflows of cash.
• It is used by the firm to estimate its short-term cash requirements, with particular attention to
planning for surplus cash and cash shortages.
• Typically, the cash budget is designed to cover a 1-year period, divided into smaller time intervals.
• The number and type of intervals depend on the nature of the business. The more seasonal and
uncertain a firm’s cash flows, the greater the number of intervals.
• Firms with stable patterns of cash flow may use quarterly or annual time intervals.
Short-Term Financial Planning: Cash Budget
1. Cash Receipts
Cash receipts include all of a firm’s inflows of cash in a given financial period.
The most common components of cash receipts are cash sales, collections of
accounts receivable, and other cash receipt
• Forecast sales This initial entry is merely informational. It is provided as
an aid in calculating other sales-related items.
• Cash sales The cash sales shown for each month represent 20% of the
total sales forecast for that month.
• Collections of A/R These entries represent the collection of accounts
receivable (A/R) resulting from sales in earlier months.
Short-Term Financial Planning: Cash Budget
2. Cash Disbursements
Cash disbursements include all outlays of cash by the firm during a given financial
period. The most common cash disbursements are
• Cash purchases • Fixed-asset outlays
• Payments of accounts payable • Interest payments
• Rent (and lease) payments • Cash dividend payments
• Wages and salaries • Principal payments (loans)
• Tax payments • Repurchases or retirements of stock

3. Net Cash Flow

The firm’s net cash flow is the mathematical difference between the firm’s cash
receipts and its cash disbursements in each period.
Short-Term Financial Planning: Cash Budget
Example
Coulson Industries, a defense contractor, is developing a cash budget for October, November,
and December. Coulson’s sales in August and September were $100,000 and $200,000,
respectively. Sales of $400,000, $300,000, and $200,000 have been forecast for October,
November, and December, respectively. Historically, 20% of the firm’s sales have been for cash,
50% have generated accounts receivable collected after 1 month, and the remaining 30% have
generated accounts receivable collected after 2 months. Bad-debt expenses (uncollectible
accounts) have been negligible.5 In December, the firm will receive a $30,000 dividend from
stock in a subsidiary.
1. Cash Receipts
• Forecast sales This initial entry is merely informational. It is provided as an aid in calculating other sales-related
items.
• Cash sales The cash sales shown for each month represent 20% of the total sales forecast for that month.
• Collections of A/R These entries represent the collection of accounts receivable (A/R) resulting from sales in
earlier months.
• Lagged 1 month These figures represent sales made in the preceding month that generated accounts
receivable collected in the current month. Because 50% of the current month’s sales are collected 1 month
later, the collections of A/R with a 1-month lag shown for September represent 50% of the sales in August,
collections for October represent 50% of September
sales, and so on.
• Lagged 2 months These figures represent sales made 2 months earlier that generated accounts receivable
collected in the current month. Because 30% of sales are collected 2 months later, the collections with a 2-
month lag shown for October represent 30% of the sales in August, and so on.
• Other cash receipts These are cash receipts expected from sources other than sales. Interest received,
dividends received, proceeds from the sale of equipment, stock and bond sale proceeds, and lease receipts may
show up here. For Coulson Industries, the only other cash receipt is the $30,000 dividend due in December.
• Total cash receipts This figure represents the total of all the cash receipts listed for each month. For Coulson
Industries, we are concerned only with October, November, and December, as shown in Table.
2. Cash Disbursements
• Coulson Industries has gathered the following data needed for the preparation of a cash
disbursement schedule for October, November, and December.
• Purchases The firm’s purchases represent 70% of sales. Of this amount, 10% is paid in
cash, 70% is paid in the month immediately following the month of purchase, and the
remaining 20% is paid 2 months following the month of purchase.
• Rent payments Rent of $5,000 will be paid each month.
• Wages and salaries Fixed salary cost for the year is $96,000, or $8,000 per month. In
addition, wages are estimated as 10% of monthly sales.
• Tax payments Taxes of $25,000 must be paid in December.
• Fixed-asset outlays New machinery costing $130,000 will be purchased and paid for
in November.
• Interest payments An interest payment of $10,000 is due in December.
• Cash dividend payments Cash dividends of $20,000 will be paid in October.
• Principal payments (loans) A $20,000 principal payment is due in December.
• Repurchases or retirements of stock No repurchase or retirement of stock is
expected between October and December.
• Purchases This entry is merely informational. The figures represent 70% of the forecast sales for
each month. They have been included to facilitate calculation of the cash purchases and related
payments.
• Cash purchases The cash purchases for each month represent 10% of the month’s purchases.
• Payments of A/P These entries represent the payment of accounts payable (A/P) resulting from
purchases in earlier months.
• Lagged 1 month These figures represent purchases made in the preceding month that are paid
for in the current month. Because 70% of the firm’s purchases are paid for 1 month later, the
payments with a 1-month lag
shown for September represent 70% of the August purchases, payments for October represent
70% of September purchases, and so on.
• Lagged 2 months These figures represent purchases made 2 months earlier that are paid for in
the current month. Because 20% of the firm’s purchases are paid for 2 months later, the
payments with a 2-month lag for October represent 20% of the August purchases, and so on.
• Wages and salaries These amounts were obtained by adding $8,000 to 10% of the sales in each
month. The $8,000 represents the salary component; the rest represents wages
3. Net Cash Flow
Short-Term Financial Planning: Pro Forma Income Statement
• Cash planning focuses on forecasting cash flows, profit
planning relies on concepts to project the firm’s profit and
overall financial position.
• Shareholders, creditors, and the firm’s management pay close
attention to the pro forma statements, which are projected, or
forecast, income statements and balance sheets.
• Two inputs are required for preparing pro forma statements:
(1) financial statements for the preceding year and
(2) the sales forecast for the coming year
• A simple method for developing a pro forma
income statement is the percent-of sales method.

• Applying these percentages to the firm’s forecast

sales of $135,000 we get the 2004 pro forma
income statement shown in Table below.
• We have assumed that Vectra will pay $4,000 in
common stock dividends, so the expected
contribution to retained earnings is $6,327.
• This represents a considerable increase over
$3,650 in the preceding year.
• Vectra Manufacturing’s 2003 actual
and 2004 pro forma income statements
Short-Term Financial Planning: Pro Forma Balance Sheet
• A number of simplified approaches are available for preparing the pro forma balance
sheet. Probably the best and most popular is the judgmental approach.
• To apply the judgmental approach to prepare Vectra Manufacturing’s 2004 pro forma
balance sheet, a number of assumptions must be made about the levels of various balance
sheet accounts:

1. A minimum cash balance of $6,000 is desired.

2. Marketable securities are assumed to remain unchanged from their current level of $4,000.
3. Accounts receivable on average represent 45 days of sales. Because Vectra’s annual sales are projected to
be $135,000, accounts receivable should average $16,875 (1/8 $135,000). (Forty-five days expressed
fractionally is one-eighth of a year: 45/360 1/8.)
4. The ending inventory should remain at a level of about $16,000, of which 25 per cent (approximately
$4,000) should be raw materials and the remaining 75 per cent (approximately $12,000) should consist of
finished goods.
5. A new machine costing $20,000 will be purchased. Total depreciation for the year is $8,000. Adding the
$20,000 acquisition to the existing net fixed assets of $51,000 and subtracting the depreciation of $8,000
yield net fixed assets of $63,000.
6. Purchases are expected to represent approximately 30% of annual sales, which in this case is
approximately $40,500 (0.30 $135,000). The firm estimates that it can take 72 days on average
to satisfy its accounts payable. Thus accounts payable should equal one-fifth (72 days360 days)
of the firm’s purchases, or $8,100 (1/5 $40,500).
7. Taxes payable are expected to equal one-fourth of the current year’s tax liability, which equals
$455 (one-fourth of the tax liability of $1,823 shown in the pro forma income statement in
Table)
8. Notes payable are assumed to remain unchanged from their current level of $8,300.
9. No change in other current liabilities is expected. They remain at the level of the previous year:
$3,400.
10.The firm’s long-term debt and its common stock are expected to remain unchanged at $18,000
and $30,000, respectively; no issues, retirements, or repurchases of bonds or stocks are
planned.
11.Retained earnings will increase from the beginning level of $23,000 (from the balance sheet
dated December 31, 2003, in Table) to $29,327. The increase of $6,327 represents the amount
of retained earnings calculated in the year-end 2004 pro forma income statement in Table.
New Product Development and
Operation Planning
New Product Development Process

6 Steps in the New Product Development Process

Step 1: Ideation
Step 2: Product Definition
Step 3: Prototyping
Step 4: Detailed Design
Step 5: Validation/Testing
Step 6: Commercialization
New Product Development Process
1. Ideation
• “Ideation,” is where new product concepts originate.
• Often, businesses form a small team to explore the idea generation and initial definition of
the product concept, conduct business analysis, perform market research, and explore its
technical and market risk.
• The idea stage is often the most important step for brainstorming new products because it
is where most product ideas come from - and this casts the die for the development.
• Getting the product concept wrong at this early stage wastes time and increases
opportunity costs.
• Marketing efforts should also include active competitive analysis and market scanning.
New Product Development Process
2. Product definition
• Sometimes called “scoping,” or concept development, this step involves refining the definition
of the product concept.
• The team creates the first detailed assessment of the new product concept's technical,
market, and business aspects and determines its core functionality.
• Developers and managers explore and define the key points of differentiation for the new
product.
New Product Development Process
3. Prototyping
• This step in the NPD justifies the company’s investment in product development by requiring
the team to create a detailed business plan.
• This plan usually involves intensive market research. The team thoroughly explores the
competitive landscape for the new product and where the proposed product fits within it,
while also creating a financial model for the new offering that makes assumptions about
market share.
• Pricing is determined in this step
• For tangible new products, such as hardware or mixed systems, the team also considers the
manufacturability of the proposed new product.
• By the end of this phase, Senior Management should have a clear idea of what they’re
investing in and how it will perform in the marketplace.
New Product Development Process
4. Detailed design
• In this phase, the focus is on product design but also refinement of the prototype of the
product.
• In most cases, they alpha-test the prototype, iteratively working with customers: getting
their feedback and incorporating it into the prototype.
• In parallel, marketing, sales and manufacturing begin to create the launch and
manufacturing platforms to support the emerging product.
New Product Development Process
5. Validation/Testing
• Validation and testing means ensuring the prototype works as planned.
• It also means validating the product in the eyes of the customers and markets, while testing
the viability of the financial model for the product.
• The marketing strategy is also confirmed at this point.
• If anything in the business case or prototype needs revising, this is the team’s last chance to
do so.
New Product Development Process
6. Commercialization
• During this step of the product development process (including the manufacturing
process), the team realizes everything required to bring the final product to market,
including marketing and sales plans (or sales training if necessary).
• The team begins to operationalize the manufacture and customer support for the product.
New Product Development Process
Product Strategy and Road Map
Product Strategy
A product strategy is a high-level plan that
helps you realize your vision or overarching
goal. It explains who the product is for, and why
people would want to buy and use it; what the
product is, and what makes it stands out; and
what the business goals are, and why it is
worthwhile for your company to invest in it.
Product Strategy and Road Map
Product Life Cycle
Product Strategy and Road Map
Product Roadmap
A product roadmap is a document that communicates the
strategic direction of your product to align key stakeholders,
marketing teams, sales teams, product teams, and customers on
what you’re prioritizing. Your product roadmap is a critical part
of the product strategy.
Feature-based roadmaps are built on product features, such as registration,
search, or reporting, which are then mapped onto a timeline to indicate when
each feature will be released; a cost-benefit analysis is often used to
determine if and when a feature should be implemented.

Goal-oriented roadmaps take a different approach. As their name suggests,

these roadmaps focus on goals or objectives. Sample goals might include
acquiring customers, increasing engagement, and removing technical debt.
Features still exist, but they are viewed as second-class citizens; they are
derived from the goals and used sparingly.
Business Operational Plan
• An operational plan is a highly detailed set of activities which stipulates the day-to-day practical and concrete
activities to be carried out by the management team

A long-term (5+ years) plan which sets

Strategic plan the general direction for the

Strategic Goals
management entity
A short-term (1 year) plan with a
detailed focus which outlines day-to-
day actions of managers
Operational plan
Multiple operational plans run
concurrently in order to cover the
different aspects of the strategies
The translation of the
Implementation operational plan into on-the-
ground activities.

• Operational planning and implementation are the concretization of the goals and plans created over the
course of the workshop
Business Operational Plan

Why do we develop an operational?

• Operational plans provide those within the organization with a clear picture of
their tasks and responsibilities over a specified time period
• It helps to achieve the strategic goals of the organization in a consistent and
coherent manner
• Clearly defining tasks allows for checks to assure that these tasks are in line with
the strategic objectives
Business Operational Plan
How do we develop an operational plan?
1. Definition of available resources for project implementation such as time,
money, personnel, knowledge etc.
2. Assessment of currently unavailable resources
❖ Which resources are necessary for task execution but are currently
not available?
❖ Is there a lack of funding?
❖ A lack of political will?
❖ Is it likely that these resources will be available in the future?
Business Operational Plan
How do we develop an operational plan?
3. Definition of specific responsibilities within the managing entity:
a) Who should be responsible for which activities?
b) Clarify: Define clearly which tasks must be undertaken
c) Delegate: Delegate responsibility to a person or group of people for each activity
d) Clarify: Have concrete timelines in which tasks must be completed
e) Indicate the amount of resources which will be dedicated to each task
f) Follow good practice guidelines, such as those from the Open Standards Methods
g) Clarify: Continue with the logic of the conceptual model and results webs to maintain
consistency
h) Are detailed enough to provide all personnel with a clear idea of what is expected
from them
Business Operational Plan
How do we develop an operational plan?
4. Convert strategies and activities into concrete tasks which:
a) Define clearly which tasks must be undertaken
b) Delegate responsibility to a person or group of people for each activity
c) Have concrete timelines in which tasks must be completed
d) Indicate the amount of resources which will be dedicated to each task
e) Follow good practice guidelines, such as those from the Open Standards Methods
f) Continue with the logic of the conceptual model and results webs to maintain
consistency
g) Are detailed enough to provide all personnel with a clear idea of what is expected
from them
5. Follow up with monitoring of results, impacts and research
a) Refer to the following presentation for more detailed information
 Innovation and Entrepreneurship
Lecture 11: Business Plan

Department of Instrumetation and Automation Technology

 Learning Objectives
At the end of this module, you will be able to:
❖ Identify the essential elements of a Business Plan.
❖ Identify how a good Business Plan can create an anchor for
continued success.
❖ List additional resources that can help you develop an effective
Business Plan.
❖ Able to develop Business plan for a company
 What is a Business Plan?
❖ A Business Plan is a written document that defines the goals of your
business and describes how you will attain those goals.
❖ A Business Plan is worth your considerable investment of time, effort,
and energy.
❖ A Business Plan sets objectives, defines budgets, engages partners, and
anticipates problems before they occur.

5
 Advantages of having a good Business
Plan

❖ A Business Plan identifies key areas of your business so you can

maximize the time you spend on generating income.
❖ Key investors will want to look at your Business Plan before providing
capital.
❖ A Business Plan helps you start and keep your business on a successful
path.
❖ You should prepare a Business Plan, although, in reality, many small
business owners do not.
10 Reasons Why You Need a Strong Business Plan

1. To attract investors.
2. To see if your business ideas will work.
3. To outline each area of the business.
4. To set up milestones.
5. To learn about the market.

7
10 Reasons Why You Need a Strong Business Plan
(Contd.)

6. To secure additional funding or loans.

7. To determine your financial needs.
8. To attract top-level people.
9. To monitor your business.
10. To devise contingency plans.

8
 The Business Plan

A written summary of:

1. An entrepreneur’s proposed business venture
2. The operational and financial details
3. The marketing opportunities and strategy
4. The managers’ skills and abilities.
A business plan is the best insurance against launching a business
destined to fail or mismanaging a potentially successful company.
4-9
 The Business Plan: Two Essential Functions

Guiding the company by charting its future course and defining its
strategy for following it.
Attracting lenders and investors who will provide needed capital.

4 - 10
 A Plan Must Pass Three Tests

1. The Reality Test – proving that :

❖ A market really does exist for your product or service.
❖ You can actually build or provide it for the cost estimates in the plan.

2. The Competitive Test – evaluates:

❖ A company’s position relative to its competitors.
❖ Management’s ability to create a company that will gain an edge over its rivals.

3. The Value Test – proving that:

❖ A venture offers investors or lenders an attractive rate of return or a high probability
of repayment.
4 - 11
 Why Take the Time to Build a Business Plan?

❖ Although building a plan does not guarantee success, it does

increase your chances of succeeding in business.
❖ A plan is like a road map that serves as a guide on a journey
through unfamiliar, harsh, and dangerous territory. Don’t attempt
the trip without a map!

4 - 12
 Strategic Management Process

Step 1 Develop a vision and translate it into a mission

statement
Your mission statement is what your company is doing right now, while your vision
statement is what you hope to achieve in the future

Step 2 Assess strengths and weaknesses

Step 3 Scan environment for opportunities and threats
Step 4 Identify key success factors
 Strategic Management Process Contd.)

Step 5 Analyze competition

Step 6 Create goals & objectives
Step 7 Formulate strategies
Step 8 Translate plans into actions
Step 9 Establish accurate controls

3 - 14
 Step 1: Develop a Vision and Create a
Mission Statement

Vision – the result of an entrepreneur’s dream of

something that does not exist yet and the ability to paint
a compelling picture of that dream for everyone to see.
A clearly defined vision:
❖ Provides direction
❖ Determines decisions
❖ Motivates people
❖ Allows for perseverance in the face of adversity
 Step 1: Develop a Vision and Create a
Mission Statement

Addresses question: “What business are we in?”

The mission is a written expression of how the company
will reflect an entrepreneur’s values, beliefs, and vision –
more than just
“making money.”
Serves as a “strategic compass.”
Step 1: Develop a Vision and Create a
Mission Statement

Elements of a mission statement:

❖ Purpose of the company: What are we in business to
accomplish?
❖ Business we are in: How are we going to accomplish that
purpose?
❖ Values of the company: What principles and beliefs form
the foundation of the way we do business?
 Step 2: Assess Company Strengths and
Weaknesses

Strengths
◦ Positive internal factors a company can draw on to
accomplish its mission, goals, and objectives.
Weaknesses
◦ Negative internal factors that inhibit a company’s
ability to accomplish its mission, goals, and
objectives.

CH. 3: BUSINESS MODEL AND STRATEGIC PLAN 3 - 18

Step 3: Scan for Opportunities and Threats

Opportunities
◦ Positive external factors the company can exploit to
accomplish its mission, goals, and objectives.
Threats
◦ Negative external factors that inhibit the firm's ability to
accomplish its mission, goals, and objectives.
 Key Elements of a Business Plan

❖ Title Page and Table of Contents

❖ Executive Summary – Executive summery of a business plan is an
overview of the business. Its purpose is to summarize the key points of a
document for its readers, saving them time and preparing them for the
upcoming content. Think of the executive summary as an advance organizer
for the reader. Above all else, it must be clear and concise.
Therefore, the executive summary is often called the most important part of
the business plan. If it doesn’t capture the reader's attention, the plan will be
set aside unread - a disaster if you've written your business plan as part of an
attempt to get money to start your new business
4 - 20
 Key Elements of a Business Plan
❖ Executive Summary
✓ Company and market overview
✓ Explain the product/service that the company is going to sell
✓ Target Customers (Characteristics of the target customers)
✓ Competitors
✓ Competitive advantages of the product
✓ How you are planning on selling
✓ briefly explain if there any problem with the current situation

4 - 21
 Key Elements of a Business Plan (Contd.)
❖ Executive Summary
✓ Briefly explain the Management Team
✓ Company milestones

4 - 22
 Key Elements of a Business Plan (Contd.)

❖ Company History
✓ Explain the company incorporated information, current addresses of the
company and factory (if there are any). Business and Industry profile.
❖ Mission and vision Statement
✓ Explain the Mission and vision statements of the company.
❖ Management Team
✓ Explain the position and profile of the team members with their expertise
✓ The main responsibilities of these members
✓ Organizational structure

4 - 23
 Key Elements of a Business Plan

❖ Product or service overview

✓ Detail description of the product or services
✓ Product/service characteristics
✓ Features of the products/service ( to understand the competitive advantages of
the product/services)
✓ Quality control/quality assurance of the product/services
✓ Pricing strategy of the product/service and pricing of the products/services
❖ Business Model
✓ Explain how the products/services are selling to the target customers. (Business
strategy)
✓ Explain the nine converses of the business model
4 - 24
 Key Elements of a Business Plan

✓ Who is the target Customers, size of the customer segment

✓ Customer attainment strategy. (strategies to get the customers)
✓ Services that provide to the customers.
❖ Market Commentary
✓ Brief introduction about the market and total addressable market size.
✓ Sales and Marketing Strategies.
✓ Explain how to promote the product/services of the company.
✓ Barriers to enter to the market and how to overcome these barriers.
✓ Pricing strategy of the product/ service.
✓ Distribution of product/service
✓ Explain the sales team of the company and strength of the team.
4 - 25
 Key Elements of a Business Plan (Contd.)

❖ Competitor overview
✓ Main Competitors and analyze them with the product characteristics
✓ Explain the main features of your/service.
✓ SWOT analysis of the product and having considered the other
information such as management team, competences of the
management team etc.
✓ PASTAL Analysis of the business and product.

4 - 26
PESTEL Analysis
 Key Elements of a Business Plan (Contd.)
❖ Milestones of the Business
✓ Overview of the milestones and dates/ durations to achieve the said
milestones.
✓ Explain about future milestones
❖ Other/ Miscellaneous
✓ Analyze the potential risks of the business.
✓ How to mitigate the risks of the business
❖ Forecasted Financial Statements
✓ Forecasted financial plan must be given with the Business Plan.
✓ It is better to prepare quarterly for the first year and from the second year
annually.
4 - 28
 Key Elements of a Business Plan (Contd.)
✓ Income and Expenditure Statement
▪ Forecasted Revenue and Forecasted expenditure

4 - 29
 Guidelines for Preparing a Business Plan

Remember: No one can create your plan for you.

❖ Potential lenders want to see financial projections, but they are more
interested in the strategies for reaching those projections.
❖ Show how you plan to set your business apart from competitors;
don’t fall into the “me too” trap.
❖ Identify your target market and offer evidence that customers for
your product or service exist.

4 - 30
 Tips on Preparing a Business Plan (Contd.)

❖ Your plan must prove that the business will make money (not
necessarily immediately, but eventually).
❖ Use spreadsheets to generate financial forecasts.
❖ Always include cash flow projections.
❖ Keep your plan “crisp” – between 25 and 40 pages long.
❖ Tell the truth – always.

4 - 31
 Key Takeaways From This Module

❖ Business Plans are critical for the success of a company.

❖ Different businesses will require different types of Business Plans.
❖ All Business Plans have some essential sections that explain the core
aspects of the company.

32
 Development of Business Proposals - Products
1. Business Proposal for Dehydrated Food
2. Business Proposal for Wood base innovative products

4. Business Proposal for Instant Nutrition Supplement

3. Business Proposal for Butter Cakes roll/cube (Kola-Kenda roll/cube/ Porriage Cube)
 5. Business Proposal for Fire Cubes/ Fire starters 6. Business Proposal for Egg Incubators for SMEs

7. Business Proposal for Eco Friendly Paper Straws

 Development of Business Proposals -Services
1. Business Proposal for Educational Institute 2. Business Proposal for IT consultant Firm

3. Business Proposal for Institute to teach Robotics, IoT, 4. Business Proposal for Photography Company
Innovation, AI and ML
End of Lecture -11
SWOT ANALYSIS: STRENGTHS,
WEAKNESSES, OPPORTUNITIES,
AND THREATS

Copyright © 2014 by The University of Kansas

WHAT IS A SWOT ANALYSIS AND WHY
SHOULD YOU USE ONE?

A SWOT analysis guides you to identify the positives and negatives inside
your organization (Strength & Weakness) and outside of it, in the external
environment (Opportunity & Threat). Developing a full awareness of your
situation can help with both strategic planning and decision -making.

Copyright © 2014 by The University of Kansas

WHEN DO YOU USE SWOT?

You might use it to:

• Explore possibilities to problems.
• Make decisions for your initiative.
• Determine where change is possible.
• Adjust and refine plans mid-course.

Copyright © 2014 by The University of Kansas

WHAT ARE THE ELEMENTS OF
A SWOT ANALYSIS?

Copyright © 2014 by The University of Kansas

A SWOT analysis focuses on Strengths, Weaknesses,
Opportunities, and Threats.

Ask participants to answer these simple questions: what are the

strengths and weaknesses of your group, community, or effort,
and what are the opportunities and threats facing it?

Copyright © 2014 by The University of Kansas

If a looser structure helps you brainstorm, you can group positives
and negatives to think broadly about your organization and its
external environment.

Copyright © 2014 by The University of Kansas

Below is a third option for structuring your SWOT analysis, which may be
appropriate for a larger initiative that requires detailed planning. This "TOWS
Matrix" is adapted from Fred David's Strategic Management text.

Copyright © 2014 by The University of Kansas

David gives an example for Campbell Soup Company that stresses financial
goals, but it also illustrates how you can pair the items within a SWOT grid
to develop strategies. (This version of the chart is abbreviated.)

Copyright © 2014 by The University of Kansas

LISTING YOUR INTERNAL FACTORS:
STRENGTHS AND WEAKNESSES (S, W)

General areas to consider

• Human resources - staff, volunteers, board members,
target population
• Physical resources - your location, building, equipment
• Financial - grants, funding agencies, other sources of
income
• Activities and processes - programs you run, systems you
employ
• Past experiences - building blocks for learning and success,
your reputation in the community

Copyright © 2014 by The University of Kansas

LISTING EXTERNAL FACTORS:
OPPORTUNITIES AND THREATS (O, T)

Forces and facts that your group does not control include
• Future trends in your field or the culture
• The economy - local, national, or international
• Funding sources - foundations, donors, legislatures
• Demographics - changes in the age, race, gender, culture of
those you serve or in your area
• The physical environment (Is your building in a growing part
of town? Is the bus company cutting routes?)
• Legislation (Do new federal requirements make your job
harder...or easier?)
• Local, national or international events

Copyright © 2014 by The University of Kansas

HOW DO YOU CREATE A SWOT ANALYSIS?

• Who develops the SWOT?

• When and where do you develop a SWOT analysis?
• How do you develop a SWOT analysis?

Copyright © 2014 by The University of Kansas

Steps for conducting a SWOT analysis:
• Designate a leader or group facilitator.
• Designate a recorder to back up the leader if your group is large.
• Introduce the SWOT method and its purpose in your organization.
• Let all participants introduce themselves.
• Have each group designate a recorder; direct them to create a SWOT
analysis.
• Reconvene the group at the agreed-upon time to share results.
• Discuss and record the results.
• Prepare a written summary of the SWOT analysis to give to participants.

Copyright © 2014 by The University of Kansas

HOW DO YOU USE YOUR SWOT
ANALYSIS?

Use it to:
• Identify the issues or problems you intend to change.
• Set or reaffirm goals.
• Create an action plan.

Copyright © 2014 by The University of Kansas

IN SUMMARY

A realistic recognition of the weaknesses and threats that exist for your
effort is the first step to countering them with a robust set of strategies
that build upon strengths and opportunities. A SWOT analysis identifies
your strengths, weaknesses, opportunities and threats to assist you in
making strategic plans and decisions

Copyright © 2014 by The University of Kansas

 1

Cash Management and Preparing

Financial Plan

DR. B. L. S THILAKARATHNE
 Outline of the Lecture 2

❖ What is Financial Plan

❖ Importance of the Financial Plan
❖ What is Managing Cash ?
❖ Cash Management Roles of an Entrepreneurs
❖ Preparing per forma financial plans
❖ How to forecast sales, receipts and cash
disbursements
 The Importance of Cash 3

“Everything is about cash – raising it, conserving it, collecting it.”

Guy Kawasaki

Common cause of business failure: Cash crisis!

A comprehensive financial plan helps organizations anticipate and mitigate

financial risks. Analyzing financial statements and cash flows can identify
potential risks and vulnerabilities, such as market fluctuations, liquidity
constraints, or excessive debt levels.
 4

Financial plans are

non-negotiable
when you need a
roadmap for future
resource allocation
and better cash
management.
Financial plans 5

1. Strategic Financial Plan: This plan outlines the organization’s long-term financial
goals and strategies, including market expansion, acquisitions, or new product
development.
2. Operating Budget: An operating plan works on short-term financial goals and
objectives, detailing revenue and expense projections for a specific period,
typically a year.
3. Cash Flow Management Plan: It aims to ensure sufficient liquidity by monitoring
cash inflows and outflows, managing working capital, and projecting future cash
needs.
4. Investment Plan: An investment plan defines the organization’s investment goals
and strategies, including portfolio diversification, asset allocation, and risk
management.
5. Debt Management Plan: It provides a possible framework for managing and
reducing debt, including repayment schedules, interest rates, and refinancing
options.
Financial plans 6

6. Risk Management Plan: This plan Identifies and addresses financial risks,
such as market volatility, currency fluctuations, or regulatory changes,
through strategies like insurance, hedging, and contingency planning.
7. Succession Planning: focuses on ensuring a smooth transition of ownership
or leadership within the organization, including strategies for management
succession, ownership transfers, and estate planning.
8. Retirement Planning: It aims to secure the financial well-being of
employees, offering retirement savings plans, investment options, and
strategies for long-term financial security.
9. Contingency Plan: This plan preemptively addresses potential crises or
unexpected events by developing strategies to mitigate financial risks and
ensure business continuity.
 What is Financial Plan? 7

❖ Financial planning is the task of determining how a

business will afford to achieve its strategic goals and
objectives.
Wikipedia
❖ The Financial Plan describes each of the activities,
resources, equipment and materials that are needed to
achieve these objectives, as well as the timeframes
involved.
 What is Financial Plan (Contd.) 8

 It provides the entrepreneur with a complete picture of:

❖ The amount funds and when they are coming into the organization.
❖ Where funds are going and how much cash is available.
❖ The projected financial position of the firm.
❖ The plan explains how the entrepreneur intends to meet financial
obligations and maintain the venture’s liquidity.
❖ It provides the Business Plan with consistency, by confirming that the
objectives set are achievable from a financial point of view.
 Importance of Financial Plan 9

 Common mistake among business owners:

❖ Failing to collect and analyse basic financial data.
❖ Many entrepreneurs run their companies without any
kind of financial plan.
❖ Financial planning is essential to running a successful
business and is not that difficult.
❖ It also helps the entrepreneurs to set financial targets for
the organization, and reward staff for meeting objectives.
 Importance of Financial Plan (Contd.) 10

❖ Entrepreneur has to show the readers ( Investors/venture capitalists )

how all the ideas, concepts and strategies described elsewhere come
together in a profitable way.
❖ Financial Plan is the financial roadmap for the enterprise how to spend
the money for different activities. It explains:
✓ Capital budget
✓ Manufacturing budget
✓ Marketing budget
✓ Operating Budget
 What is Managing the Cash ? 11

 Cash management includes

❖ Forecasting
❖ Collecting
❖ Disbursing
❖ Investing
❖ Planning
for the cash a company needs to operate smoothly.
Know your company’s cash flow cycle.
 The Cash Flow Cycle 12

Deliver
Goods
Order Receive Pay Sell Send Customer
Goods Goods Invoice Goods* Invoice Pays**

Day 1 15 40 218 221 230 280

14 25 178 3 9 50
Cash Flow Cycle = 240 days

*Based on Average Inventory Turnover: **Based on Average Collection Period:

365 days = 178 days 365 days = 50 days
2.05 times/year 7.31 times/year
FIGURE 12.2
 Five Cash Management Roles of an 13
Entrepreneur
1. Cash Finder
2. Cash Planner
3. Cash Distributor
4. Cash Collector
5. Cash Conserver
 Cash and Profits 14

❖ Cash ≠ profits.
❖ Profit is the difference between a company’s total
revenue and total expenses.
❖ Cash is the money that is free and readily available
to use.
❖ Cash flow measure a company’s liquidity and its
ability to pay it bills.
 Cash Flow
Increase in Cash
Cash
Decrease in Cash
Leakage

Accounts Receivable Accounts Payable

Cash Sales Production/Cash Purchases

Inventory

Leakage
 The Cash Budget

❖ A “cash map” that shows the amount and the timing of a firm's
cash receipts and cash disbursements over time.
❖ Predicts the amount of cash a company will need to operate
smoothly.
❖ Helps to visualize a company’s cash receipts and cash
disbursements and the resulting cash balance.
 Preparing a Financial Plan 17

 The plan should include pro forma:

❖ Balance sheet
❖ Income statement
❖ Cash flow statement
 Financing required and sources
 18
Balance sheet
The term balance sheet
refers to a financial
statement that reports a
company's assets, liabilities,
and shareholder equity at a
specific point in time.
Balance sheets provide the
basis for computing rates of
return for investors and
evaluating a company's
capital structure.
Income statement 19
The income statement
is one of three statements
used in both corporate
finance (including financial
modeling) and accounting.
The statement displays the
company's revenue, costs,
gross profit, selling and
administrative expenses,
other expenses and
income, taxes paid, and net
profit in a coherent and
logical manner.
Cash flow statement 20

In financial accounting,
a cash flow statement,
also known as statement
of cash flows,is
a financial statement that
shows how changes
in balance sheet accounts
and income affect cash
and cash equivalents, and
breaks the analysis down
to operating, investing and
financing activities.
 Preparing Pro Forma Financial Plan 21

Pro forma financial

statements incorporate
hypothetical numbers or
estimates. They are built
into the data to give a
picture of a company's
profits if certain
nonrecurring items are
excluded.
 22
Determine a Minimum Cash Balance

Remember Goldilocks, the Three Bears, and the porridge:

➢ Not too much...
➢ Not too little...
➢ But a cash balance that's
just right ... for you!
 Preparing Pro Forma Financial Plan 23

❖ Determine a minimum cash balance.

❖ Forecast Sales
 24
Forecast Sales
 The heart of the cash budget.
❖ Sales are ultimately transformed into cash receipts and cash disbursements.
❖ Cash forecast is only as accurate as the sales forecast from which it is
derived.
 25
Forecast Sales
“Lumpy” or seasonal sales patterns are common.
 15% to 18% of wine and spirits shops’ annual sales occur between December
15 and 31.
 40% of toy sales take place in last 6 weeks of the year.
 Forecast Sales 26

Prepare three sales forecasts:

 Pessimistic

 Optimistic

 Most Likely
 Preparing Pro Forma Financial Plan 27

❖ Determine a minimum cash balance.

❖ Forecast Sales
❖ Forecast Cash Receipts
 Forecast Cash Receipts 28

❖ Record all cash receipts when the cash is actually received (i.e. the cash
method of accounting).
❖ Determine the collection pattern for credit sales; then add cash sales.
❖ Monitor closely: Slow and non-payers.
 Collecting Delinquent Accounts 29

1 93.80%
Number of Months

2 85.20%
Delinquent

3 73.60%

6 57.80%

9 42.80%

12 23.60%

24 13.60%

0.0% 20.0% 40.0% 60.0% 80.0% 100.0%

Probability of Collection
 Preparing Pro Forma Financial Plan 30

❖ Determine a minimum cash balance.

❖ Forecast Sales
❖ Forecast Cash Receipts
❖ Forecast Cash Disbursements
 31
Forecast Cash Disbursements
❖ Record disbursements when you expect to make them.
❖ Start with those disbursements that are fixed amounts due on
certain dates.
❖ Review the business checkbook to ensure accurate estimates.
❖ Add a cushion to the estimate to account for “Murphy’s Law.”
❖ Don’t know where to begin? Try making a daily list of the items
that generate cash and those that consume it.
 Preparing Pro Forma Financial Plan 32

❖ Determine a minimum cash balance.

❖ Forecast Sales
❖ Forecast Cash Receipts
❖ Forecast Cash Disbursements
❖ Estimate End-of-Month Cash Balance
 33
Estimate End-of-Month Balance
❖ Take Beginning Cash Balance ...
❖ Add Cash Receipts ...
❖ Subtract Cash Disbursements
❖ Result is Cash Surplus
or Cash Shortage
(Repay or Borrow?)
 34
The “Big Three” of Cash Management

1. Accounts Receivable
2. Accounts Payable
3. Inventory
 Accounts Receivable 35

❖ About 90% of industrial and wholesale sales are on credit, and 40%
of retail sales are on account.
❖ Survey of small companies across a variety of industries found that
77% extend credit to their customers.
❖ Remember: “A sale is not a sale until you collect the money.”
❖ Accounts receivable goal: Collect your company’s cash as fast as you
can.
 Beating the Cash Crisis 36
Accounts Receivable
❖ Establish a firm credit-granting policy.
 Screen credit customers carefully.
 Develop a system of collecting accounts.
 Send invoices promptly.
 When an account becomes overdue, take action immediately.
 Add finance charges to overdue accounts (check the law first!).
Accelerating Accounts Receivable 37

❖ Ensure that invoices are accurate and timely.

❖ Include a description of the goods or services purchased.
❖ Ensure that invoices match purchase orders or contracts.
❖ Highlight the balance dues and due date.
❖ Include contact information in case customers have questions.
 Beating the Cash Crisis 38
Accounts Payable
 Stretch out payment times as long as possible without damaging
your credit rating.
 Verify all invoices before paying them.
 Take advantage of cash discounts.
 Beating the Cash Crisis 39
Accounts Payable

❖ Negotiate the best possible terms with your suppliers.

❖ Be honest with creditors; avoid the “the check is in the mail”
syndrome.
❖ Schedule controllable cash disbursements to come due at
different times.
❖ Use credit cards wisely.
 Beating the Cash Crisis 40
Inventory
❖ Monitor it closely; inventory can drain a company’s cash.
❖ Avoid inventory “overbuying.” It ties up valuable cash at a
zero rate of return.
❖ Arrange for inventory deliveries at the latest possible date.
❖ Negotiate quantity discounts with suppliers when possible.
 Avoiding the Cash Crunch 41

❖ Consider bartering, exchanging goods and services for other

goods and services, to conserve cash.
❖ Trim overhead costs:
 Ask for discounts and “freebies”
 Periodically evaluate expenses
 Lease rather than buy
 Avoid nonessential cash outlays
 Negotiate fixed loan payments to coincide with your company’s
cash flow
 Avoiding the Cash Crunch 42

❖ Trim overhead costs:

 Buy used equipment
 Hire part-time employees and freelancers
 Outsource nonessential activities
 Control employee advances and loans
 Establish an internal security and control system
 Develop a system to battle check fraud
 Change shipping terms
 Benefits of Cash Management 43

 Increase amount and speed of cash flowing into the company

 Reduce the amount and speed of cash flowing out
 Make the most efficient use of available cash
 Take advantage of money-saving opportunities such as cash
discounts
 Finance seasonal business needs
 12 -
Benefits of Cash Management 44

 Develop a sound borrowing and repayment program

 Impress lenders and investors
 Provide funds for expansion
 Plan for investing surplus cash
 Conclusion 45

 “Cash is King”
 Cash and profits are not the same.
 Entrepreneurial success means operating a
company “lean and mean.”
 Trim wasteful expenditures.
 Invest surplus funds.
 Plan and manage cash flow.
 46

Thank You