BOWEN UNIVERSITY IWO

BUS 310: MANAGEMENT OF

SMALL-MEDIUM ENTERPRISES

Lecture Notes BY Dr. Oluwabunmi Falebita

Business Administration Programme,

College of Social and Management Sciences

COURSE LECTURER’S DETAILS

Name: Dr Oluwabunmi A. FALEBITA

Mobile / WhatsApp Number: 08033825150

E-mail: oluwabunmi.falebita@bowen.edu.ng

Room/Office Number: College of Social and Management

Sciences Building ground floor Room 021.

Industry Analysis

Industry analysis is a market assessment tool used by businesses

and analysts to understand the competitive dynamics of an

industry. It helps to understand the position of a company relative

to other participants in the industry.

Procedure for undertaking an industry analysis, entails the

following:

Detailed research: defining your market

Identify & Examine your competitors

Evaluate your position

Some methods include:

1. Competitive Forces Model (Michael Porter’s 5 Forces)

2. Broad Factors (PEST Political Economic Social and

Technological) Analysis

3. SWOT Analysis: Internal & External.

Group Activity:

1. Group 1: Industry analysis (Akande, Ajani, Mimiko)

2. Group 2: Competitive Forces Model (Michael Porter’s 5 Forces)

(Bandele, Balogun, Fawumi)

3. Group 3: Broad Factors (PEST Political Economic Social and

Technological) Analysis (Makinde, Osagie, Adeniji, Fasuba)

4. Group 4: SWOT Analysis: Internal & External (Thikan, Ayanniran,

Olowu, Rejoice).

5. Group 5: Business growth strategies: Market penetration, Market

development/expansion (Adeleke, Adebisi, Okore, Etokudo).

6. Group 6: Diversification, Acquisition of other businesses, mergers

and acquisition (Ologbese, Adesunloye, Okunbo, Edem).

7. Submission to my email should be on or before Tuesday13th

July, 2021 by 12.00pm and presentation will be in class on

Thursday 15th July, 2021.

8. Note, presentation will be graded (total of 20 marks) on the

following: team work, appearance, submission content and

formatting, knowledge of the subject matter, references.

Pricing

Price is an important element of the marketing mix. It can beused as a strategic marketing variable to meet competition. It is

also a direct source of revenue for the firm. It must not only cover

the costs but leave some margin to generate profit for the firm.

However, price should not be so high as to frighten the

customers.

Determinants of Pricing include;

Cost

Demand: most of the time, there is an inverse relationship

between price and quantity demanded, provided that otherfactors are kept constant.

Competition: this depends on prevalent conditions, such as

Monopoly, pure competition, Oligopoly,

PRODUCT

Product: A product is the key marketing mix variable around which all theother marketing mix variables revolve.

Levels of product (see figure):

Core benefit: fundamental service or product that a customer is buying.

Basic product: are the tangibles derived from the core benefit.

Expected product: attributes customers expect when purchasing a product.

Augmented product: addition to exceed customer expectations.

Potential product: future augmentations.

Marketing Mix

Channels of distribution: channel of distribution is used to refer tothe various intermediaries who help in moving products from the

producer to consumers. Channels of distribution can be grouped

as: A. Direct Selling by Manufacturers and B. Indirect Selling

through Middlemen.

Selecting an appropriate channel for distribution depends on the

following:

Type of product

Nature and extent of the market

Competitive characteristics

Distribution costs

Channels of distribution (Amstrong & Kotler, 1984):

Channels for consumer goods

Channels of distribution (Amstrong & Kotler, 1984):

Channels for Industrial goods

Determining the competitive positioning best adopted by a small

firm.

Positioning is one of the fundamental elements of marketing forall types of businesses. It is a brand/ business’ unique way of

providing value to its customers. It is used to create an image of

a brand’s product or service in the mind of a target customer.

When a product or service is effectively positioned, it gets a USP

(Unique Selling Proposition).

Let’s assess McDonalds for example: their USP targets family, they

position themselves as a family-friendly restaurant, by having

children’s menu items, free toys with every kid’s meal,

playgrounds etc. Assess Toyota, Porsche, Volvo, Benz etc.

Positioning can be based on any of the following:

1. Product characteristics

2. Price

3. Quality or luxury (Rolls Royce).

4. Product use or application.

5. Based on competition: highlights a key difference their products

offer in comparison to others.

Determining the competitive positioning best adopted

by a small firm.

Competitive Positioning strategies could also include:

1. Market Profile

2. Customer segments

3. Value delivery.

Business growth strategies:

1. Internal: Market penetration, Market

development/expansion, Product development/

expansion, Diversification, Acquisition of other

businesses, Modernization.

2. External: Mergers, Joint venture.

SWOT ANALYSIS How to conduct a SWOT analysis: this entails an overall

assessment of a business to identify both the potential

advantages as well as disadvantages and challenges of a

business.

It stands for:

Strengths: may include specialized management skills, a

productive and well-trained workforce, enough capital,

adaptability to changing environment and so on.

Weaknesses: may include may include an obsolete product

range, unacceptable levels of pilferage and lack of capital.

Opportunity: surge in population, pandemic outbreak, new

consumer tastes or preferences,

Threats: a drastic fall in the Naira/dollar exchange rate,

pandemic outbreak, unrest, kidnapping and insecurity etc.

CLASS ACTIVITY ON SWOT ANALYSIS You are the owner of Yetty‘s Pizzeria in Yaba, Lagos State, Nigeria. Your

business has been operating for the past four years and made a

handsome profit, in the first three years. However, the current year‘s sales

figures are bad with a 30 percent decline in turnover. Yesterday evening

you heard from the news at 9.00pm and heard about the following

major developments in the economy:

A decline in the inflation rate of 2 percent for the year.

A decrease in the interest rate of 2 percent for the past year.

An increase in unemployment of 5 percent, with specific reference to the

high level of unemployment in the country.

A growth in fast-food enterprises of 20 percent over the last year.

A decline in the per capita personal disposable income of 10 percent

during the last year.

New legislation whereby more females must be employed in the existing

workforce.

A Consultant at the small business corporation has advised you to

conduct a SWOT Analysis, Draw up a list of the strengths and

weaknesses, and current opportunities and threats of your business.

SME FINANCIALS Financial plan: refers to a document containing the current

monetary situation of a business , and the long-term monetary

goals, as well as strategies to achieve the goals.

Cash flow: is the net amount of cash and cash equivalents being

transferred into and out of a business during a period of time.

Sources of funds: The major sources of funds include: Cash

introduced by owner(s), Available loan to business, Sale of assets,

Income from operations.

Uses of funds: Owner’s withdrawals, loans, repayments, purchaseof assets, losses from operations, payment of taxes, payments or

disbursements such as rents, allowances, salaries etc.

Location: is the physical setting or site for situating a business.

Layout: is the arrangement of physical facilities of a business.

Techniques for enhancing profitability: increasing turnover,

productivity and efficiency, increase or expand product lines,

increase customers, increase in sales, reduction of wastes,

decrease in costs.

SME FINANCIALS Budgeting: is a systematic approach for achieving management

performance. A Budget is a comprehensive and coordinated plan,

expressed in financial terms, for the operations and resources of an

enterprise for some specified period in the future, usually for twelve

months. Such planning activities should include: assets and the sources

of funds (revenues, expenses) and uses of funds. The success of a

budget depends greatly on the control instruments or mechanisms put in

place, hence, the need for budgetary control. It has merits and

demerits.

Purpose of budgeting:

To state a firm‘s expectation categorically and unambiguously

To reduce inherent risks and uncertainty

To provide a parameter to measure and control the performance of

individuals and units in the organization

To provide a means to effectively communicate organizational

expectation to all parties

To help employees in coordinating resources and projects.

Budget Preparation: a comprehensive budget should include the following;

sales budget, production budget, purchasing (raw materials) budget,

labour and cash budget.

SME FINANCIALS Ratio analysis: Financial ratios: Financial ratios are mathematical

comparisons of financial statement used to analyse a business‘

financial standing. Financial ratios can be classified into the following:

liquidity ratios, solvency ratios, profitability ratios and efficiency ratios

(also called activity ratios or asset utilization ratios). Other categories

include cash flow ratios, market valuation ratios, coverage ratios.

Liquidity ratios: is the ability of a business to convert its assets to cash and

pay off its obligations without any significant difficulty. It explains the

financial position of a business. E,g cash-conversion cycle.

Solvency ratios: is the long-term financial viability of a business, that is ability

to pay off its long-term obligations such as bank loans, bonds payable, etc.

Information about solvency is critical for banks, employees, owners,, etc.

E.g Debt ratio.

Profitability ratios: is the ability of a business to earn profit for its owners. it

measures the financial performance of a business. E.g Net profit margin.

Activity ratios: assess the efficiency of operations of a business. E.g

Inventory turnover ratio.

Cash flow ratio: is used to assess the quality of earnings of a business.

Coverage ratio: are supplementary to solvency and liquidity ratios and

measure the risk inherent in lending to the business in long-term.

SME FINANCIALS Break-even analysis: entails the calculation and examination of

the margin of safety for an entity based on the revenues

collected and associated costs. It is used to determine the level

of production and sales target.

Break-even chart: Break-even chart (BEC)has been defined as,

“a chart which shows the profitability or otherwise of an

undertaking at various levels of activity and as a result indicates

the point at which neither profit nor loss is made.” Also called

Cost-Volume-Profit graph (CVP-graph). It depicts the following:

(a) Cost (i.e. Fixed, Variable and Total); (b) Sales value and

Profit/Loss; (c) Break-Even Point; (d) Margin of Safety. It is a graph

that shows: Activity or volume of production plotted on the ‗X‘

axis, while cost and revenue are plotted on the ‗Y‘ axis.

Types of BEC, depending on the purpose: (a) Detailed Break-Even Chart; (b) Control Break-Even Chart; (c) Cash Break-Even

Chart; and (d) BEC to ascertain the optimum volume.

Advantages of BEC: easy to construct and understand, useful

guide for management, helps to select the most profitable

product mix, helps to determine the strength of the business.

SME FINANCIALS Break-even chart

SME INFORMATION Information definition: Information is useful data that can

influence a business or someone‘s choices and behaviour. Raw

data are basically facts and figures.

Characteristics of information include: Accurate (correct),

Complete, Relevant (useful), and Timely.

Costs of Information:

Acquisition costs; this is the cost of obtaining data that you don‘t

have.

Processing costs; this is the cost of turning raw data into usable

information.

Storage cost; the cost of physically or electronically archiving

information for later use and retrieval.

Communication costs; this is the cost of transmitting information

from one place to another.

Importance of information: It helps to gain strategic advantage

as the first-mover, sustain competitive advantage, aids businesssurvival, helps business growth.

SME INFORMATION Sources of information: Internal and external Sources: Internal source: Internal information

consists of data created for the sole use of the company that produces it, such as personalfiles, trade secrets etc. These include:

Financial information; this information is related to the performance, profit and loss of thecompany. This will include information such as how much you pay for items, staff salaries andwages, the costs of taxes etc.

Personnel Information: Personnel information is information held by the company on theiremployees. This information must be freely available to the employee any time that they requestit. It can be used to monitor length of service of an employee, employee productivity, employeetrainings etc.

Marketing Information: is used by the market team to identify what products or services offered

by the business are most successful, information on sales can guide promotion of certainproducts or services, it can be obtained using external sources or customer surveys, and can beused streamline or improve the business and keep customers happy.

Purchasing Information: Purchasing information is collected by the purchasing department whoare involved with buying all the products needed to run your business, such as stationery,computers, machineries etc. Costs and quality of such purchases must be monitored to maximizeprofits.

Sales Information: needs to be monitored based on the product or services offered by thecompany.

Manufacturing information: is information about the cost of manufacturing goods within thecompany, such as the running cost of all machinery, wages paid to production staff and the costof raw materials (including waste) used up in the manufacturing process.

Administration Information: involves communicating with external sources and storing informationon customers to build successful relationships with them.

SME INFORMATION External source: refers to information made available to the

public through third-party. Such sources include:

Government: Information supplied by the government is coming

from a reliable source as this is the governing body that they

business operates within. Companies need to use important legal

information from the Government to help run the

business successfully and legally. E. g Minimum wage, government

grants, policy etc.

Trade Groupings: A trade grouping is a group of businesses that

operate within the same sector and not within the same location.

E.g Technical trade association, Farmers’ association.

Commercially Provided Information: Companies can use

commercially provided information to help them make the correct

business decisions. E.g no of flight to and fro airports will be useful for

hotels, sales figures or profit declaration of other competing

companies.

Databases & Research: Many companies can make money

creating this information by analysing currently available sales

statistics in business sectors.

SME INFORMATION

Definition of an information system: Laudon and Laudon (2012)define Information systems as interrelated components working

together to collect, process, store, and disseminate information

to support decision making, coordination, control, analysis, and

visualization in an organization.

Components of an information system: are of these five

components; Technology (hardware, software, data), people,

and process.

Technology: comprises hardware, software and data.

Hardware: is the part of an information system that can be

touched, e.g. monitor, laptops, keyboards etc.

Software: is a set of instructions that tells the hardware what to do, it

is intangible and cannot be touched. It can be categorised into

operating-system software (e.g. Microsoft windows, and Android)and application software(e.g. Microsoft Excel, Angry birds etc.).

Data: is a collection of facts, which are intangible, e.g. your street

address, the city you live in, and your phone number

FURTHER READINGSTEXT BOOKS

1.Total Quality Management: Dale.H.Bester field, Publisher- Pearson

Education India, ISBN:8129702606

2.Total Quality management for Engineers: M. Zairi, ISBN-1855730243 Publisher- Wood head publishing

REFERENCE BOOKS

1. Managing for Quality and Performance Excellence by James

R.Evans and Williuam M Lindsay, 9th edition, Publisher Cengage

Learning.

2. A New American TQM, four revolutions in management, Shoji

Shiba, Alan Graham, David Walden, Productivity press, Oregon,

1990

3. Organizational Excellence through TQM, H. Lal, New age

Publications, 2008

4. Laudon .K.C. and Laudon. J.P. (2012) Management Information

Systems, twelfth edition, Prentice-Hall, ISBN-13: 978-0132142854

5. Bourgeois. D.T. (2014) Information Systems for Business and beyond;