1. Small Business Environment: Managing External Relations
Chapter 3
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2. Learning Objectives
LO1 Describe the elements that make up the small business environment.
LO2 Demonstrate your ability to scan the small business environment.
LO3 Apply the techniques of building legitimacy for your organization.
LO4 Navigate the techniques of social networking.
LO1 Describe the elements that make up the small business environment.
LO2 Demonstrate your ability to scan the small business environment.
LO3 Apply the techniques of building legitimacy for your organization.
LO4 Navigate the techniques of social networking.
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3. Learning Objectives (cont.)
LO5 Explain the basic skills for handling a crisis. LO6 Recognize how small businesses can achieve sustainability. LO7 Identify the major steps in making ethical decisions in small business.
LO5 Explain the basic skills for handling a crisis.
LO6 Recognize how small businesses can achieve sustainability.
LO7 Identify the major steps in making ethical decisions in small business.
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4. The Environment of Small Business
The sum total of forces outside of the entrepreneur and the firm.
The moment Tim’s frustration with missing the home run made him rethink what was happening around him, he became aware of the environment —all of the forces outside the firm or in this case the individual entrepreneur (or entrepreneur-to-be).
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5. The Environment of Small Business
Organizational identity
composed of the name, description, and distinctive elements of a firm, such as trademarks, uniforms, logos, characters and stories
part of the BRIE model
Following the BRIE model in starting a business, the entrepreneur creates a boundary within the environment, setting his firm apart from the rest of the environment. In doing this, the entrepreneur gives the firm an organizational identity . Organizational identity is not just the name of a firm, but its basic description—what it does and where it does this.
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6. The Environment of the Small Business
Bootstrapping
Using low-cost or free techniques to minimize your cost of doing business
As entrepreneurs face resource constraints, they often learn to get by with less, or substitute a more readily obtained resource, or ask to borrow, rent, or trade for the resource. These techniques are called bootstrapping and are part of the culture of most successful start-ups.
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7. Organization’s Environment
Figure 3.1
You may have seen a diagram of the environment like the one in Figure 3.1 in your introductory business or management text. It makes sense to revisit it here thinking about how these terms apply to small businesses.
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8. The Elements of the Small Business Environment
Internal environment
The people and groups within the boundary of a firm, including the owners, managers, employees, and board members of the firm
The internal environment of a firm consists of those people inside the boundary—the owner, any employees, and any other owners or board members of the firm.
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9. The Elements of the Small Business Environment
Organizational culture
A set of shared beliefs, basic assumptions, or common, accepted ways of dealing with problems and challenges within a company that demonstrate how things get done.
As every company matures, it adds to its organizational culture a set of shared beliefs or basic assumptions that demonstrate how things get done. Organizational culture also includes common, accepted ways of dealing with problems and challenges within a company.
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10. The Elements of the Small Business Environment
External environment
The forces, institutions and people (i.e., the rest of the world) outside the boundary of the firm.
The external environment consists of everything outside the firm’s boundary. When businesspeople talk about “the environment” and they are not talking about air, land, or water, this is the environment they are discussing. The easiest way to think about this very large entity is to break it into two parts.
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11. The Components of the Small Business Environment
Task environment
A part of the external environment made up of those components that the firm deals with directly such as customers, suppliers, consultants, media, interest groups, and the like.
Those parts of the environment that directly and consistently touch on the firm are called the task environment , because these are the components that directly relate to your firm performing its basic business tasks. This part of the environment is made up of those people your firm deals with every day
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12. The Elements of the Small Business Environment
General environment
A part of the external environment made up of sectors of major forces that shape the people and institutions of the task and internal environments, such as the economic sector or the demographic sector
The other, even larger part of the environment is called the general environment . It represents the major forces on the lives of people and institutions like businesses, and even nations. Some components of this environment are easy to understand and apply to small business.
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13. Environmental Scanning for Small Business
Look for trends in the trade press of your industry
Ask your customers and suppliers what they see on the horizon
Keep notes on how work has changed
Subscribe to blogs outside your area of business
There are several low-cost and relatively fast ways to monitor the environment.
They include:
● Looking for trends and future-looking articles in the trade and professional press of your
industry or those of members of your task environment (see Skill Module 2.1).
● Asking your customers, suppliers, banker, attorney, and accountants what they see on the horizon
for business in general, for business in your community in general, or for your industry
or line of business in particular.
● Keeping notes on the things that bother you about the way work is done now, or what bothers
you about how something has changed (whether a product, service, or process you deal with),
and periodically do some fast research (typically searching on the Web) on what causes it
and how others feel about it. For opinion Web sites, try ePinions, Yelp, Amazon, Buzzillions,
Mouthshut, TrustedReviews, ConsumerSearch or CitySearch.
● Subscribing to a couple of magazines/newsletters (online or hard copy) or online newsfeeds
or blogs outside your area of business. In the science/technology area for example look at
Discover, Wired, Scientific American , or even Popular Mechanics . For online versions, you
can subscribe to the RSS feed or a summary to several of the print magazines, or online
sources like Gizmag. For all of these, tag or record interesting ideas so you can come back to
them when you have time to think. By the way, you can find a list of online and print magazines
Organized by topic areas on Yahoo Directory’s News and Media section (dir.yahoo.com/
News_and_Media
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14. Five Skills for Managing Relations with the Environment
External relations
The general description for the processes and skills used in the management of a firm’s interactions with people, organizations and institutions outside of its boundary.
External relations is the general description for the processes and skills used in the management of a firm’s interactions with people, organizations, and institutions outside of its boundary.
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15. Five Skills for Managing Relations with the Environment
Building legitimacy
Developing a social network
Handling a crisis
Achieving sustainability
Making ethical decisions
In this section five approaches to managing relations with the environment, what is called external relations , will be introduced:
● Building legitimacy
● Developing a social network
● Handling a crisis
● Achieving sustainability
● Making ethical decisions
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16. Five Skills for Managing Relations with the Environment
Social capital
characteristics of a business, like trust, consistency, and networks, that represent potential social obligations which are an asset of the firm or entrepreneur
The goal of any small business owner is to manage external relations in order to create social capital. Social capital includes characteristics of a business, like trust, consistency, and networks, that help make business operations smooth and efficient. Small businesses high in social capital are more trusted, checked up on less, treated more fairly by regulators, and given the benefit of the doubt when problems occur.
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17. Building Legitimacy Legitimacy
the belief that a firm is worthy of consideration or doing business with because of the impressions or opinions of customers, suppliers, investors, or competitors
Based on people, product, or organization
Legitimacy means that a firm is worthy of consideration or doing business with because of the impressions or opinions of customers, suppliers, investors, or competitors. Gaining legitimacy is one of the top challenges facing new small businesses, but it can be especially difficult for entrepreneurs seen as “different”—women, minorities, home-based businesses, businesses started by young people, entrepreneurs introducing a new technology, or people new to the area or industry.
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18. People-Based Legitimacy Indicators
Table 3.1
Making sure the people of your business always work in the best, friendliest, and most professional way also helps build the business. Some of the major examples of people-based legitimacy are given in Table 3.1 .
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19. Product-Based Legitimacy Indicators
Table 3.2
Table 3.2 describes many forms of product-based legitimacy.
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20. Product-Based Legitimacy Indicators
ISO (International Standards Organization)
refers to certification for having met a standard of quality that is consistently evaluated around the world
ISO stands for the International Standards Organization, and refers to certification for having met a standard of quality that is consistently evaluated around the world (see ).
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21. Product-Based Legitimacy Indicators
Baldrige Award
given by the U.S. government to businesses and nonprofit organizations that have been judged outstanding in seven measures of quality leadership; strategic planning; customer and market focus; measurement, analysis, and knowledge management; human resource focus; process management; and results
The Malcolm Baldrige National Quality Award is given by the U.S. government to businesses and nonprofit organizations that have been judged outstanding in seven
measures of quality leadership; strategic planning; customer and market focus; measurement, analysis, and knowledge management; human resource focus; process
management; and results (see ).
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22. Organization-Based Legitimacy Indicators
Table 3.3
Table 3.3 gives the key factors for organizational legitimacy.
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23. Developing a Social Network
the entrepreneur’s set of relationships and contacts with individuals and institutions
way to work trust, reciprocity, and long-term relationships into your day-to-day business operations.
Another basis for building social capital is through building a social network. A social network is the entrepreneur’s relationships and contacts with others. Social networking is a way to work trust, reciprocity, and long-term relationships into your day-to-day business operations. It’s a way to build your company’s expertise by convincing others to share their skills and knowledge with your firm.
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24. Sources for Network Connections
Figure 3.2
While business organizations are the natural place to go for advice, there are many people available at your local college, your church, on your softball team, at your gym, or any other place you spend time, which have valuable information and experience.
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25. Types of Help Sought Figure 3.3
What kind of help do entrepreneurs seek from their social network? The Panel Study of Entrepreneurial Dynamics (PSED) provides some insight as to the type of help people starting their own business seek out and these results are shown in Figure 3.3 .
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26. Asking for help Request from people you trust
Ask for specific behavior
Do not be defensive
Do not overreact or underreact
Summarize what was said to ensure understanding
Explain what you are going to do about feedback
Thank the person for the input
Follow through
The best people to ask for help are often the people who are the busiest. Knowing this, some small business owners shy away from imposing. In reality, there is no substitute for expertise, and getting it from others is one of the most efficient and effective ways to do it. Building on the ideas of Paula Caproni, here is an eight-step approach to asking others for help:
Request from people you trust
Ask for specific behavior
Do not be defensive
Do not overreact or underreact
Summarize what was said to ensure understanding
Explain what you are going to do about feedback
Thank the person for the input
Follow through
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27. Developing a Social Network
Mutuality
The action of each person helping another.
Networking
Interacting with others in order to build relationships useful to a business.
Mutuality is the idea and action of each person helping the other. Part of building social capital with social networking comes from the help people in the network can provide one another. You have to take the time to build and keep up your relationships with others in your network. This is called networking , which means
small business owners interacting with others in order to build relationships useful to the business.
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28. Networking Skills Know who you are Know whom you want and why Buddy up
Bone up on the small talk
Do not forget why you’re here
Make the connection
Follow up
Networking is a skill like any other. In business you often know the kind of situation you are about to go into or are likely to face. Knowing this, you can take several steps to prepare yourself to socialize with others as a basis for establishing a business relationship. Here are the steps you can take to prepare:
Know who you are
Know whom you want and why
Buddy up
Bone up on the small talk
Do not forget why you’re here
Make the connection
Follow up
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29. Online Social Networking Sites
Table 3.4
Table 3.4 gives you a quick guide to the major social networking sites.
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30. Developing a Social Network
Make it easy for people to contact you
Take the initiative to ask others on the network to link with you
Find and link up with network mavens
Keep at it—successful online networking requires consistent involvement
Regardless of the site or sites you use, there are four best practices which can help any online social networking effort become more successful (whether you are pursuing it online or in person):
● Make it easy for people to contact you (this often means giving one of your or social network addresses).
● Take the initiative to ask others on the network (including colleagues from school and work, and friends and family) to link with you and then help them out online.
● Find and link up with network mavens—people who like to gather and share their enormous networks and help out whenever you can.
● Keep at it—successful online networking requires consistent involvement. It can be weekly, but it needs to be every week.
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31. Handling a Crisis Admit you’re in trouble – quickly
Get to the scene as soon as possible
Communicate facts you know
Have one person serve as the firm’s spokesperson
Separate crisis management from the everyday management of the firm
Deal with the crisis quickly
All small business owners will face a crisis at some point. It is best to admit you need help and get it as soon as you can to prohibit the crisis from growing.
If it is a public crisis designate a spokesperson to keep the public and employees informed. While crises cannot be avoided, when dealt with properly they can be manageable. If not dealt with properly, a crisis could be your down fall.
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32. Achieving Sustainability
Sustainable entrepreneurship
identifies or creates and then exploits opportunities to make a profit in a manner that minimizes the depletion of natural resources, maximizes the use of recycled material, improves the environment, or any combination of these outcomes
Green entrepreneurship
Sustainable entrepreneurship is an approach to the operation of the firm, the line of business of the firm, or both, which identifies or creates and then exploits opportunities to make a profit in a manner that minimizes the depletion of natural resources, maximizes the use of recycled material, improves the environment, or any combination of these outcomes. Positive outcomes along these lines are described as “greener,” so the approach is also sometimes called green entrepreneurship .
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33. Making Ethical Decisions
Ethics
a system of values that people consider in determining whether actions are right or wrong
Ethical Dilemma
a situation that occurs when a person’s values are in conflict, making it unclear whether a decision is the right thing to do
Ethics comprise a system of values people use to determine whether actions are right or wrong. We consider ethics in determining whether a decision we are about to make is good or bad. And, we make judgments about actions—something is good or bad; someone is right or wrong—based upon our own personal ethics. An ethical dilemma occurs when a person’s values are in conflict, making it unclear whether a decision we’re thinking about making is right or not. 26 An ethical dilemma also occurs when there are several different options for a decision we have to make and the best choice isn’t clear.
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34. Ethical decision-Making Model for Small Business
Figure 3.4
The model is given in Figure As you might expect, although the steps sound easy, doing them well requires working through some complicated issues.
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35. Making Ethical Decisions
Caveat emptor
A Latin expression which means “let the buyer beware” which has been made into a philosophy sometimes used by businesses to put the burden for consumer protection onto the customer
You can still see an occasional entrepreneur, corporate magnate, or economic pundit invoke the old Latin phrase caveat emptor , let the buyer beware. It gets repeated because it has popped up in legal cases, and the Latin makes it sound impressive, but as a legal principle, it has been routinely discredited
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36. Making Ethical Decisions
Golden Rule
suggests you treat others in the manner you wish to be treated
Utilitarianism
supports seeking the greatest good for the greatest number of people
Am I treating others the way I would want to be treated? You’ve probably heard of this one before. It’s the Golden Rule , and almost every major religious tradition in the world has some version of it. Is my solution the best thing for the most people over the long term? You may have heard of an idea called utilitarianism . Basically, it means that the action resulting in the greatest good for the greatest number of people is the right action to take. This idea has a strong community focus.
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37. Making Ethical Decisions
Universalism
there is a code of right and wrong that everyone can see and follow.
Billboard principle
asks whether someone would be comfortable having his decision and name advertised on a billboard for the public to see.
What if everyone did what I want to do? What kind of world would it be? Those questions in a nutshell are the idea of universalism , a code of right and wrong that everyone can see and follow
What if my decision were advertised on a billboard? If you have tried ways to think this through and still can’t decide whether what you plan to do is ethical, try the billboard principle . As the name implies, this asks whether you’d be comfortable having your decision (with your name, of course) advertised on a billboard for everyone you know to see.
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38. Business Costs of Ethical Failure
Figure 3.5
What managers tend to underplay are results that are quieter, spread out over a longer term, and actually more damaging to the firm’s reputation and finances, as
seen in Figure 3.5 .
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