Unit 1: Entrepreneurial Management

1.1 The Evolution of the Concept of Entrepreneurship

1.1.1 What is an Entrepreneur?

 Kuratko & Hodgetts: Defined the entrepreneur as a person who organizes, manages,
and takes risks in business.
 So, in simple terms, an entrepreneur is someone who combines resources (like money
and labor) to create and sell products or services, while taking on risks in the process.

What is Entrepreneurship?

 The word entrepreneur comes from the French term "entreprendre," which means "to
undertake".
 Histrich and Peter: Defined entrepreneurship as a dynamic process of creating
wealth by taking risks with time, effort, and resources to offer value through products
or services.

Evolution of Entrepreneurship

 Early Times: Marco Polo, a famous explorer, can be seen as an early entrepreneur.
He set up trade routes, taking risks and sharing profits with financiers (capitalists).
 16th Century: Entrepreneurs were seen as individuals who undertook military
expeditions in France.
 17th Century: Entrepreneurship was tied to risk. Entrepreneurs signed contracts with
governments to supply products or services, and they took on both the profit and loss.
 18th Century: Richard Cantillon, a French economist, used the term "entrepreneur"
for the first time in a business sense. He said entrepreneurs buy resources at fixed
prices and sell the resulting products at uncertain future prices.
 19th Century: Entrepreneurs were seen as risk-takers, who also played the role of
planners, organizers, and leaders.
 Early 20th Century: Entrepreneurs were viewed as promoters who turned ideas into
profitable businesses. Joseph Schumpeter saw them as innovators who developed new
technologies or business models.
 21st Century: Entrepreneurs are now also seen as individuals who add incremental
value to existing products or services, not necessarily coming up with entirely new
ideas. The growth of technology and the internet has made entrepreneurship more
accessible, allowing people to launch businesses with just a click.

John Kao’s Model of Entrepreneurship

John Kao's 1989 article Entrepreneurship, Creativity, and Organization presents a model that
identifies four key factors influencing entrepreneurial success. These factors are:

1. The Person (The Entrepreneur): The success of any new business largely depends on the
entrepreneur—the person behind the venture. Entrepreneurs are driven, creative, and
determined individuals with a unique mix of skills, traits, and experiences. They have the
ability to think outside the box, solve problems, and act decisively. The entrepreneur’s
personality, motivation, and abilities such as intuition and analytical thinking are key to the
venture’s success.

2. The Task: This focuses on what the entrepreneur does. They need to spot opportunities in
the market, often before anyone else does, and take action to make things happen.
Entrepreneurs must also manage people, gather resources, and lead the business forward.

3. The Environment: This is everything around the entrepreneur—the market, laws,

competition, and social factors. The environment can either help or hinder the business, so
the entrepreneur must understand it well enough to adapt and use it to their advantage.

4. The Organization: The organization refers to the structure and culture of the business
itself. Entrepreneurs need to create a workplace where innovation and growth are possible.
This means setting up the right systems, rules, and communication channels, and fostering a
positive, productive environment.

1.1.3 Idea Generation

What is Idea Generation?

It’s the process of coming up with, developing, and communicating ideas. These ideas could
be abstract, concrete, or even visual.

Sources of Ideas for Entrepreneurs:

1. Consumers: Entrepreneurs should pay close attention to what potential customers

need or want. This could be done by informally observing or directly asking for
feedback. The idea should have a large enough market to support a new business.
2. Existing Products and Services: Entrepreneurs should always keep an eye on
competitive products and services. By understanding what others do well, they can
improve on existing ideas to create something better. For example, Sam Walton
(founder of Walmart) would visit competitor stores to learn from their best practices,
not just their mistakes.
3. Competitive Research: Jameson Inns, for example, asked each hotel manager to
report weekly on the prices and strategies of competitors. This helped them stay ahead
by understanding what worked in the market.
4. Distribution Channels: Distribution channels, like retailers or wholesalers, can offer
valuable ideas for new products. Since they’re familiar with customer needs, they
often suggest new product ideas or improvements to existing ones.
5. Government: Governments often help entrepreneurs by providing resources or
supporting innovation. For example, during the COVID-19 pandemic, the Indian
government, through DRDO, developed Personal Protection Equipment (PPE) suits
and transferred the technology to the textile industry for mass production.
6. Research and Development (R&D): One of the biggest sources of new ideas is an
entrepreneur’s own research efforts, whether formal or informal. This could be
research done within a company or in someone’s garage.
1.2Identifying and Evaluating Opportunities

Opportunity Assessment Plan (OAP):

This plan helps entrepreneurs quickly determine whether an idea is worth pursuing, without
creating a full business plan. An opportunity assessment plan has four sections—two major
sections and two minor sections.

 First Major Section : This section explains the product or service idea. It looks at
competing products and companies and shows what makes your idea unique, focusing on
what sets it apart in the market (its Unique Selling Proposition).

 Second Major Section: This part focuses on the market for your idea. It covers the
market size, trends, characteristics, and growth rate, helping you understand if there’s enough
potential for success.

 First Minor Section: This section is about you (the entrepreneur) and your team. It looks
at your background, education, skills, and experience to see if you have what it takes to make
the business work.

 Second Minor Section: This section creates a timeline of the steps needed to launch the
business. It shows what must happen to turn the idea into a successful business.

1.2.1 Establishing Evaluation Criteria

When evaluating an idea, it’s essential to set clear goals. The criteria should be SMART:

 Specific, Measurable, Attainable, Relevant, Time-bound.

The new product must:

 Fit with the company’s current capabilities.

 Align with the company’s financial structure.
 Be compatible with existing resources, like equipment and staff.

Entrepreneurs should constantly evaluate their ideas as they develop:

I Idea Stage: In the Idea Stage, entrepreneurs should:

 Identify promising ideas and reject impractical ones.

 Use a checklist to assess each idea’s value and its potential for success.
 Analyze the market need and the product’s importance to the company.

II Concept Stage: In the Concept Stage, the entrepreneur refines the idea and tests it with
potential customers to see how well it will be accepted. One common method is the
conversational interview, where customers react to the product’s features, price, and
promotion. Compare the new idea with competitors to see what’s better or worse.

III Product Development Stage: In the Product Development Stage, the idea is tested
with a consumer panel. The panel tries the product and compares it with similar products on
the market. The goal is to see how consumers feel about the product’s strengths and
weaknesses. Feedback: Participants record their opinions and preferences.
IV Test Marketing Stage: The Test Marketing Stage is the final test before a full
product launch. It involves selling the product in a limited area to see how well it sells and
how consumers respond. Why it matters: If the test marketing results are positive, it
suggests the product is likely to succeed when launched on a larger scale.

1.2.2 Building the Team / Leadership

 What is team building? Team building helps a group of people work together as a
cohesive unit. It's not just about getting tasks done, but also about fostering trust,
respect, and support between team members, even though they may have different
strengths and opinions.
 The entrepreneur’s role as a team leader: As an entrepreneur, you need to guide
your team towards working smoothly together and achieving their goals. A team is
like a living organism that needs regular care and attention to thrive.
 Why is team building important? With strong team-building skills, the entrepreneur
can unite employees around a shared vision, boosting overall productivity. Without
these skills, the team may struggle, and everyone will only do what they can
individually.

1.2.2.1 Benefits of Team Building

  Increased department productivity and creativity

  Team members motivated to achieve goals
  A climate of cooperation and collaborative problem-solving
  Higher levels of job satisfaction and commitment
  Higher levels of trust and support
  Diverse co-workers working well together
  Clear work objectives
  Better operating policies and procedures

1.2.3 Strategic Planning for Business

 What is strategic planning? Strategic planning is the process of figuring out where
your business is right now and where you want it to go. It helps you document your
mission, vision, values, long-term goals, and the action steps to achieve them.
 Why is a strategic plan important? A solid plan guides your business’s growth and
success. It tells you and your employees how to handle opportunities and challenges
that come your way.
 The problem with short-term focus: Many small business owners focus only on the
short-term (often planning only a year ahead). In a survey, 63% of small business
owners said they plan for just one year or less. But focusing on long-term goals is key
to future success.
 What does strategic planning involve? It’s all about analyzing your current business
situation and setting realistic, achievable goals for the future. This process will help
your business navigate challenges and seize new opportunities as they come.

1.2.4 Steps in Strategic Planning

1. Strategy Formulation (Planning the Strategy)

 The company looks at where it stands now—what’s working and what’s not, and the
environment around it (market trends, competitors).
 Identify Strengths, Weaknesses, Opportunities, and Threats to understand what could
help or hurt the company.
 Based on this, top managers decide things like which markets to enter, which to leave,
and how to grow—whether that’s through partnerships or other means.

2. Strategy Implementation (Putting the Plan into Action)

 This is where things get done! The company puts the plan into motion—allocating
resources, building teams, and making sure everyone is on board.
 Managers must motivate teams and create a positive work environment for the plan to
succeed.

3. Strategy Evaluation (Checking Progress)

 After some time, the company reviews how well the plan is working by looking at
both internal performance (how well the company is doing) and external factors
(market conditions, competitors).
 If things aren’t going as planned, adjustments are made to keep things on track.

1.3 Forms of Ownership

 What is it?
The "form of ownership" refers to how a business is legally structured. It determines
the owner’s rights, responsibilities, and how much control they have. Choosing the
right form is important because it affects the success of the business, its financial
setup, and legal obligations.

1.3.1. Sole Proprietorship (Single Ownership)

 What is it?
A sole proprietorship is one of the simplest and oldest forms of business ownership.
In this structure, a single person owns, manages, and controls the business. Examples
include small local businesses like kirana stores, restaurants, or home-based
businesses.
 It’s easy to set up and operate, and it’s very common in India. It’s a popular choice
because the owner has full control over the business and all profits.

Benefits of Sole Proprietorship

 There's minimal paperwork and only a few legal formalities (like a license for certain
businesses).
 Since the owner runs everything, decisions can be made quickly without waiting for
approval.
 The owner can change the business at any time, as they’re in full control.
 The owner keeps all business details (like profits and losses) private.
  Since the owner gets all the profits and bears all the risks, they are highly motivated.
 The owner can build close relationships with customers, understanding their needs
better.
 Running a sole proprietorship gives valuable experience for managing bigger
businesses.
 It can be started with a small amount of money.

Disadvantages of Sole Proprietorship

 The owner is personally responsible for the business’s debts, meaning their personal
property could be used to pay off business debts.
 Since it’s owned by one person, there are fewer resources available for expansion or
growth.
 One person can’t do everything, so there may be a lack of skills needed to manage all
areas of the business.
 The business can be unstable. If the owner decides to close it or if the owner passes
away, the business will likely end.
 Sometimes, hasty or personal decisions by the owner can lead to business losses.
 This structure works best for small, simple businesses like shops or small restaurants.

1.3.2 Partnership

A partnership is a type of business where two or more people come together to run a
business with the aim of making a profit. It's a way to overcome some of the challenges faced
by sole proprietorships, like lack of capital or limited skills.

Benefits of Partnership:

1. More Financial Resources: Since there are multiple partners, the business has access
to more capital. This makes it easier to expand and grow the business. If the business
needs more money, new partners can join.
2. Sharing Management Tasks: Partners bring different skills to the table. For
example, one might handle production, another handles marketing, and someone else
deals with legal or HR issues. This division of labor makes the business more
efficient.
3. Better Decision Making: In a partnership, decisions are made together, considering
everyone’s opinions. This helps ensure decisions are well-balanced and helps avoid
mistakes in implementation.
4. Sharing Risks: Unlike a sole proprietor, the partners share the risks of the business. If
the business faces challenges, the partners split the responsibility. This encourages
them to take calculated risks for bigger rewards.
5. Easy to Set Up: A partnership is simple to start. The main requirement is an
agreement between the partners. There aren't high costs or complex registration
processes involved.

Limitations of Partnership:

1. Uncertain Future: A partnership is unstable. If a partner retires, dies, goes bankrupt,

or even becomes mentally unfit, the partnership might end. The business can also
dissolve if any partner decides to leave.
 2. Unlimited Liability Risks: Like sole proprietors, partners are personally liable for
the business's debts. But here's the catch: they could be responsible not only for their
own actions but also for the mistakes of other partners. This can discourage some
people from joining.
3. Conflict Between Partners: Since decisions require unanimous agreement, partners
must agree on everything. If one partner refuses to cooperate, it can cause delays,
conflicts, and even paralysis in the business.
4. Hard to Leave the Business: While it’s easy to join a partnership, it's not so easy to
leave. If a partner wants to withdraw, the consent of all other partners is required. This
can make it hard for someone to exit the business.
5. Lack of Trust from Financial Institutions: Partnerships often don't inspire as much
trust from banks or investors. Since the business details aren't publicly disclosed and
the partnership agreement isn’t always legally regulated, it’s hard to raise large
amounts of money.
6. Challenges in Expansion: Partnerships have limited resources, both in terms of
capital and the number of partners (usually up to 20). This makes it hard to expand or
modernize the business, especially on a large scale.

1.3.3 Company

A company is a group of people who come together to run a business. It has its own legal
identity, meaning it can own property, enter into contracts, and be sued, just like a person. It
continues to exist even if its members change. The company has a seal that is used on official
documents, and its capital comes from shares that can be bought and sold by its members.
The members' responsibility is limited to what they've invested in the shares.

Merits of a Company:

1. Ability to Raise Funds: Companies can raise large amounts of money by selling
shares to the public. This allows them to fund big projects and expansions.
2. Limited Liability: If the company faces losses or debts, the shareholders are only
responsible for the amount they invested. This makes it safer for people to invest in
companies.
3. Easy Transfer of Shares: Shareholders can sell or transfer their shares easily, which
gives them flexibility if they need cash or want to exit the business.
4. Stability and Longevity: A company keeps running even if a shareholder leaves or
passes away. This makes it more stable than other types of businesses.
5. Growth and Expansion: With more financial resources, a company can grow
quickly and scale its operations. This growth often leads to higher profits and more
opportunities.
6. Professional Management: Companies can hire skilled managers to handle their
large-scale operations, ensuring that the business is run efficiently.
7. Public Trust: Companies are required to share their financial information publicly,
which helps build trust. Investors can make decisions based on annual reports and
other disclosures.
8. Social Benefits:
o Democratic Management: Companies are usually run by a board of directors
chosen by shareholders, ensuring decisions reflect the interests of the majority.
o Shared Ownership: Many people can own parts of the company through
shares, so the profits and benefits are spread among a large number of people.
Limitations of a Company:

1. Complicated and Expensive to Set Up: Setting up a company involves a lot of

paperwork and legal procedures, which can be expensive. You need experts to prepare
documents and pay registration fees.
2. Lots of Government Rules: Companies have to follow many rules set by the
government, which can be a hassle and slow down business activities.
3. Slow Decision-Making: In large companies, decisions take time because they often
need approval from multiple levels of management, which can delay actions.
4. Conflict of Interest: Since companies are large, different groups within the company
may have different interests. When these interests clash, it can cause issues.
5. Oligarchic Management: Although companies are supposed to be democratic, in
practice, a small group of people (like top executives or major shareholders) often
have most of the power.
6. Speculation: Some people try to make quick profits by manipulating share prices,
even though they don't actually own the shares. This can create instability in the
market.
7. Monopoly Tendencies: Big companies might try to eliminate competition by
becoming monopolies, which means they can control the market and charge higher
prices.
8. Influencing Government Decisions: Large companies often have the financial
power to influence government decisions, sometimes by offering bribes or pressuring
officials to act in their favor.

1.3.4 Limited Liability Partnership (LLP)

An LLP is a modern business structure that blends the best features of both partnerships and
companies. Introduced in India through the Limited Liability Partnership Act, 2008, it
allows entrepreneurs to combine their professional knowledge and business skills, while
offering limited liability protection to its members.

Advantages of an LLP:

1. It's cheaper to form an LLP compared to other business structures.

2. LLPs have fewer rules and regulations, making them easier to manage.
3. It’s a simpler structure for daily operations and management.
4. If you want to shut it down, the process is straightforward.
5. You don’t need to invest a large amount of capital to start an LLP.
6. Partners aren’t personally responsible for the mistakes or debts of other partners.
7. LLPs don’t have to pay a minimum alternate tax, at least for now.

Disadvantages of an LLP:

1. The structure of an LLP may be restricted by state laws, which can limit how it
operates.
2. The legal agreements for an LLP are often complex and require detailed terms.
3. Setting up an LLP can involve high legal and filing fees.
4. Unlike companies, LLPs can’t raise money from the public by issuing shares.
5. Financial institutions may be hesitant to lend large sums to an LLP.
1.4 Franchising

1.4.1 Meaning and Definition:

Franchising is a business model where a company (the franchisor) allows others (the
franchisees) to sell its products or services under the company’s brand name. The franchisee
pays the franchisor for this right, often in the form of royalties or profit-sharing.

 Franchisor: The company that gives out the franchise.

 Franchisee: The person or business that buys the franchise and operates it.
 Franchise: The right to use a brand name and sell its products or services in a specific
area.

1.4.3 Advantages of Franchising:

1. Starting a franchise is safer than starting a business from scratch, as the business
model is already tested and successful.
2. Less than 10% of franchises fail, compared to a much higher failure rate for
independent businesses.
3. Franchisees benefit from the brand's existing recognition, making it easier to attract
customers.

1.4.4 Disadvantages of Franchising:

1. Franchisees have to follow a strict business format and can’t make their own changes.
For example, a McDonald’s franchisee must follow detailed guidelines for every
aspect of the operation.
2. Franchisees are usually limited to a certain product line or a specific location for their
business.

1.4.5 Types of Franchising:

1. Product Franchising: This is the oldest type, where a dealer is given the right to sell
goods made by a manufacturer (e.g., car dealerships, oil companies).
2. Manufacturing Franchising: In this type, the franchisor allows the franchisee to
produce and sell the product in a specific region (e.g., Coca-Cola bottlers).
3. Business-Format Franchising: The most popular type today, where the franchisor
provides a full business package, including marketing, operations, training, and
support (e.g., McDonald's, Subway).

Various types of Franchise arrangements found in practice are as under:

Sales Type Franchise & Store Type Franchise

Service Type Franchise

1. Master Franchise: A master franchise gives the franchisee the right to not only open
and run multiple units in a specific area but also to sell franchises to other people (called sub-
franchisees) within that area.
  The master franchisee takes on many of the franchisor’s tasks like providing training
and support. They also collect fees and royalties from sub-franchisees.

2. Area Development Franchise: This agreement allows the franchisee to open several
units (more than one) in a specific area over a set period of time. For example, a franchisee
might agree to open 5 units in 5 years.

 The franchisee gets exclusive rights to develop that area with multiple units, meaning
no other franchisee can open in that same territory.

3. Multi-Unit Franchise: A multi-unit franchise is when a franchisee gets the right to

open and run several franchise units, all at once or over time.

4. Single-Unit Franchise: This is the most basic type of franchise agreement. The
franchisee gets the right to open one unit.The franchisee focuses on managing just one unit
but may buy more later if the first one does well.

1.4.7 Franchise Agreements Explained:

1. Business Format Franchises: This type is based on a specific system for how to run the
business. It usually applies to retail and service businesses (like fast food or gyms).

2. Area Franchises: The franchisee gets the right to run multiple locations within a certain
region—like a city, state, or even a whole area.

3. Single Unit Franchises: The franchisee has the right to run just one location.

4. Multi-Unit Franchises: The franchisee has the right to open and run multiple locations at
once.

5. Trade-name Franchises: These franchises are based on a supplier relationship, kind of

like a distributor agreement. The franchisee gets the right to use the franchisor’s brand name,
but there’s not much control over the operations.

6. Sub Franchises: These are franchises sold by an area franchisee to other business owners
in their territory. The original franchisee acts like a "master" and sells smaller units to others.

7. Piggyback Franchises: Two or more franchise businesses share space in one location.
This way, they offer more products or services to attract more customers.

8. Convention Franchises: These are independent businesses that join an existing franchise
and become part of that larger brand.

9. Distributorships: A franchisee that sells products made by the franchisor or another

company, often similar to being a distributor for that product.
 1.4.8 Checklist for Evaluating a Franchise

When considering a franchise, it's crucial to assess the opportunity carefully to ensure that it's
a good fit for your goals. Here’s a checklist to guide you in evaluating a franchise:

On the Franchise Opportunity Itself:

I. Did your lawyer approve the franchise agreement after reviewing it?
II. Does the franchise ask you to do anything that your lawyer thinks is risky or illegal in
your area?
III. Under what conditions and what costs can you cancel your franchise contract?
IV. If you sell your franchise, will you get paid for the business value you’ve built (goodwill),
or will you lose that?
V. Does the franchise give you an exclusive area to operate in for the entire length of your
contract?
VI. Is the franchisor involved with any other franchise companies that offer similar products
or services?
VII. If yes, what protection do you have against competing franchises in the same market?

1.5 Financing Entrepreneurial Ventures

1.5.1 Introduction

Finance is the backbone of any enterprise. It’s needed at every stage of the business lifecycle,
from setting up the initial infrastructure to maintaining operations, expanding, and improving.
A business needs capital for fixed assets (like machinery and buildings) and working capital
(for day-to-day expenses like wages, inventory, and marketing). Managing finances carefully
is key to business success.

1.5.2 Financing a New Enterprise

When starting a new business, entrepreneurs must secure two types of capital:

 Working Capital: This covers short-term expenses, such as buying raw materials,
paying wages, rent, utilities, and marketing. It is referred to as revolving or
circulating capital, as it gets used and replenished regularly.
 Fixed Capital: Fixed capital is used to buy long-term assets, such as land, machinery,
and equipment. The amount needed depends on the nature and size of the business.
Manufacturing businesses generally require larger investments than trading
businesses.

1.5.3 Estimating Financial Requirements

To successfully raise funds, a business must first estimate its financial needs. These needs can
be categorized based on how long the capital is required:

 Long-Term Capital: Needed for investments in fixed assets and long-term projects
(like expansion). It’s raised through debentures, shares, and loans from banks or
financial institutions. This capital is typically used for more than five years.
  Medium-Term Capital: This is for activities like upgrading machinery, building
renovations, and advertising. It can be raised for periods of two to five years and is
often obtained through debentures, shares, or reinvesting profits.
 Short-Term Capital: Used to finance current assets and cover everyday expenses
(e.g., raw materials, wages). It’s typically raised for periods under one year and can
come from banks, trade credit, or installment credit.

1.5.4 Sources of Finance for an Enterprise

Long term financing

Businesses raise funds through various sources, depending on the time frame and purpose of
the finance. Below are the main options for raising capital:

 Equity Financing: This involves selling shares (equity or preference shares) to

investors in exchange for ownership stakes. Shareholders benefit from dividends and
have voting rights, but the business doesn’t have to repay the funds.
 Debt Financing: In this model, businesses raise funds by issuing debentures or
loans. The company borrows money from investors (debenture holders) and agrees to
repay them with interest at regular intervals.
 Term Loans: Long-term loans (usually for 3 to 10 years) from financial institutions
or banks, used to fund capital expenditures or projects that require a long time to pay
back. Examples include loans from ICICI, IDBI, or commercial banks.

1.5.5 Sources of Medium-Term Financing

Here are some common ways to raise medium-term funds:

1. Retained Earnings: This is when a business uses the profits it has earned (but hasn't
paid out) to fund future investments. These profits are saved each year and called
retained earnings.
2. Lease Finance: In a lease agreement, the business rents an asset (like machinery or
property) without actually owning it. The lessee (the business) makes payments over
time to the lessor (the owner).
3. Hire Purchase: Similar to leasing, but here the business pays in installments to buy
an asset. The seller still owns the asset until the business has made all the payments.
4. Public Deposits: These are funds raised by asking the general public to invest or
deposit money with the company. Public deposits can be a quick and easy way to
raise medium-term funds, especially in tough times when people are looking to invest
in profitable ventures.
5. Venture Capital Financing: This is risky capital provided to new or expanding
businesses. Investors in venture capital take on more risk but also get the chance to
help the business grow. They're not just lenders; they often act as partners, giving
advice and guidance.

1.5.6 Sources of Short-Term Financing

1. Trade Credit: This is when a supplier allows a business to buy now and pay later.
It's based on mutual trust and depends on the business's creditworthiness.
2. Installment Credit: the business borrows money and repays it in equal monthly
payments. It’s like a hire-purchase plan but for other expenses, like machinery.
 3. Cash Credit: This is an agreement with a bank that allows a business to withdraw
more money than it has in its account. The bank provides a limit, and the business can
borrow up to that amount for short-term needs.
4. Commercial Papers: Large companies with a good credit rating can issue
commercial papers (short-term promissory notes) to raise money from investors.
These are usually unsecured and are sold directly to buyers.
5. Bank Loan: A traditional bank loan is money lent by the bank for a set period. The
business repays it with interest. The process is simple, but it requires basic documents
like income proof and a guarantor.
6. Certificates of Deposit: These are fixed-term deposits where the business deposits
money in a bank for a set period (usually 3 months to 1 year). The business gets a
fixed return at the end of the term.
7. Bills of Exchange: A bill of exchange is a written order where one party demands
payment from another at a future date. It's common in international trade but can also
be used for local transactions.
8. Customer Advances: Sometimes customers pay in advance for goods or services
before they’re delivered. This gives the business immediate cash and doesn’t require
interest payments unless the customer cancels.
9. Factoring: Factoring is when a business sells its accounts receivable (money owed
by customers) to a third party (called a factor) at a discount. It helps the business get
quick cash.
10. Bank Overdraft: A bank overdraft allows the business to borrow money by
overdrawing on its current account. The bank allows the business to spend more than
it has, up to an agreed limit, often secured by collateral like goods or assets.

1.6. Managing Growth

Introduction: Growth is essential for any business, big or small. Without growth, a business
will struggle to survive. Many businesses start small and grow over time through continuous
expansion. This process is known as the Enterprise Life Cycle, which has five key stages.

1.6.1 Stages of Growth

1. Start-Up Stage: This is when the business is just beginning. The company operates
on a small scale, and there is little or no competition. During this stage, businesses
often don't make profits yet.
2. Growth Stage: In this stage, the business gains recognition and acceptance from
customers. Sales and production increase, but the supply still doesn’t meet demand.
As competition starts to grow, businesses shift from just selling their product to
making customers try their product.
3. Expansion Stage: This is when the business starts to grow more rapidly. It might
open new branches or introduce new products. The business diversifies to take
advantage of more opportunities.
4. Maturity Stage: In this stage, competition becomes fierce. Sales still increase, but at
a slower rate, and profits start to decline. Some smaller businesses may exit the
market. Larger businesses may use strategies to stay afloat, like trading in old
products for new ones.
5. Decline Stage: This is the final stage. Sales drop sharply, often due to new
technologies, changing customer preferences, or outdated products. Businesses in this
stage often struggle to survive and may eventually shut down.
1.6.2 Types of Growth Strategies

1. Expansion
2. Diversification
3. Joint Venture
4. Mergers and Acquisitions (M&A)
5. Sub-Contracting
6. Franchising

1. Expansion: Expansion is a natural form of business growth. It means increasing

the business’s activities without partnering with others. Here are some ways to
expand:

 Expansion through Market Penetration

Expansion through Market Development
Expansion through Product Development and/or Modification

Advantages:

 Gradual and natural growth.

 The business can grow without changing its structure.
 Better use of existing resources.
 Easier to manage.

Disadvantages:

 Growth takes time.

 Limited by the current product/market.
 May not allow for new technologies or innovations.

2. Diversification: Diversification is when a business adds new products, services, or

markets to expand beyond its current offerings. This helps overcome the limitations of
just expanding the existing product.

There are four types of diversification:

 Horizontal Diversification
 Vertical Diversification
 Concentric Diversification
 Conglomerate Diversification

3. Joint Venture: A joint venture is when two or more companies come together for
a specific project. They share the risks, costs, and profits. It’s usually a temporary
partnership that ends once the project is completed.
4. Mergers and Acquisitions (M&A): Mergers and acquisitions (M&A) are
ways for businesses to grow by combining with or buying other companies. A merger
happens when two companies combine to form one, while an acquisition happens
when one company buys another.
After economic reforms in 1991, M&A became a common way for businesses to quickly
grow. Examples include:

 Mahindra & Mahindra buying the German company Schoneweiss.

 Tata acquiring the steel company Corus.

1.6.3 Valuation of a New Company

Introduction:
When an investor is thinking about putting money into a startup, they want to figure out how
much the company is worth and whether it will be a good investment. Since startups don’t
have a long track record or predictable performance like established businesses, investors use
different methods to estimate their value. These methods help even though the numbers might
be based on predictions and guesses.

Here are some common ways to value a startup:

1. Venture Capital Method: The Venture Capital Method (VC Method) is often
used for startups that haven’t made any revenue yet. It looks at what the startup could
potentially sell for in the future, called the terminal value, and how much the investor
expects to earn back (the ROI or return on investment). Here's how it works:

 Terminal Value is the expected future price when the business is sold.
 Post-money valuation is what the startup is worth after the investment.
 Pre-money valuation is the value before the investment.

For example:

 If a startup has a terminal value of $4 million and the investor wants a 20x return, the
calculations would be:
o Post-money Valuation = $4 million ÷ 20 = $200,000
o Pre-money Valuation = $200,000 - $100,000 (investment) = $100,000

2. Scorecard Valuation Method: The Scorecard Valuation Method compares a

startup to others in the same area to get a sense of how valuable it is. You start by
finding out the average valuation of similar businesses, then evaluate the startup using
a scorecard that looks at different factors.

Some factors include:

 Strength of the Management Team (0-30%)

 Size of the Opportunity (0-25%)
 Product/Technology (0-15%)
 Competitive Environment (0-10%)
 Marketing/Sales Channels (0-10%)
 Need for Additional Investment (0-5%)
 Other Factors (0-5%)

You assign a score to each factor and use it to adjust the valuation of the startup.
3. Risk Factor Summation Method:
This method looks at 12 risks that could affect a startup’s success. For each risk (like
management or competition), you add or subtract value from the startup’s average worth
based on how risky it seems. If something looks risky, you subtract value; if it looks safe, you
add value. For example, if something is very risky, you subtract $500,000, and if it’s very
positive, you add $500,000.

4. Cost-to-Duplicate Method:
This method calculates how much it would cost to recreate the startup’s assets, like
equipment or technology. It doesn’t consider things like growth or brand value, so it gives a
lower estimate of the startup's worth. For example, you might add up the cost of hiring
developers and creating software.

5. Discounted Cash Flow (DCF) Method:

This method predicts how much money the startup will make in the future and figures out
what that’s worth today. It takes into account that startups are risky, so a higher discount rate
is used to show the risk. The challenge is that predicting future earnings accurately can be
difficult.

6. Valuation by Stage Method: This method is used to value a startup based on how far
along it is in development. The more developed the startup, the higher its value. For example:

 Idea or business plan: $250,000 - $500,000

 Strong management team: $500,000 - $1 million
 Product prototype: $2 million - $5 million
 Strong customer base: $5 million and up

7. Comparables Method: This method compares the startup to similar businesses that have
been sold or valued recently. For example, if a startup with 250,000 users sold for $7.5
million, you could value a similar startup with 125,000 users by using the same per-user
value.

8. Book Value Method: This method values a startup based on its physical assets, like
buildings and equipment, without considering future growth or intangible things like brand
value. It’s usually used when a business is closing down.

1.6.4 Harvesting & Exit: An exit strategy is simply a plan for what happens when you're
ready to leave your business. It’s not about failure—it’s about having a clear plan for your
future. Some entrepreneurs even start businesses with the goal of exiting after a certain
number of years. Having a plan doesn’t mean you’re less committed; it just means you’re
prepared for the next step.

What is an Exit Strategy?: Exiting, or "harvesting," refers to the process of getting value
out of your business when you're ready to step away. Whether you're the owner or an
investor, having a viable exit strategy helps you walk away with what you want.
Common Exit Options:

Here are 8 main ways to exit your business:

1. Transferring to a Family Member (Family Succession): If you want your
business to stay in the family, you might consider passing it on to a child or relative. This
option requires careful planning to make sure the next generation has the skills and
commitment to keep the business going.

Pros:

 You can choose who takes over and prepare them.

 You can still stay involved as an advisor.

Cons:

 Finding a family member who wants to or is capable of running the business can be
tough.
 It could bring emotional and financial stress.
 Employees or investors might not support your choice.

2. Sale to Internal Management or Employees (MBO): If someone in your team

(management or employees) is interested in buying the business, this can be a smooth exit
option. These people know the business well and might value it for what it is.

Pros:

 The people who buy know the business and can keep the legacy intact.
 They may want you to stay on as a mentor or advisor.

Cons:

 You might not find someone willing to buy.

 The change could impact your clients negatively.

3. Merger & Acquisition: In this exit strategy, your company either merges with another
business or is bought by another company. This can be a good way to get a clean break from
the business.

Pros:

 You can negotiate the terms and price.

 It's a clean exit.

Cons:

 Mergers and acquisitions can be time-consuming and expensive.

 Sometimes they don't work out as planned.

4. Sell Your Stake to a Partner/Investor: If you’re not the sole owner, you can sell
your share of the business to a partner or an investor. This can be a straightforward way to
exit, depending on the buyer.
Pros:

 Your business can continue without disruption.

 You can fully exit and (hopefully) make a profit from selling your stake.

Cons:

 Finding a buyer might be difficult.

 Staying involved in the business might be challenging after selling your share.

5. Initial Public Offering (IPO): Some entrepreneurs dream of taking their company
public and selling shares to the public. This can result in a big payout, but it’s not an easy
process and doesn’t work for every business.

Pros: This is the most likely exit strategy to give you a significant profit.

Cons:

 Going public is challenging, especially for smaller businesses.

 It’s difficult and rare for small companies to succeed with an IPO.

6. Liquidation: Liquidating means shutting down the business and selling off its assets.
This is the simplest but most final exit strategy.

Pros:

 You don’t have to worry about the business anymore.

 It’s a faster option than some other exits.

Cons:

 You might not get as much money from this option.

 It could harm relationships with employees or investors.

7. Filing for Bankruptcy: Bankruptcy is often the last resort if your business is struggling
and you can’t find another way out. It’s an official process that relieves you of debt but
comes with its own challenges.

Pros:

 It clears your business debts and lets you move on.

 You can start rebuilding your credit.

Cons:

 Bankruptcy may not relieve all debts.

 It can hurt your ability to borrow money in the future.
 It means ending relationships with clients, employees, and partners.
1.6.5 Corporate Entrepreneurship

Definition

Corporate entrepreneurship is all about creating new business ventures within an established
company to boost profitability and strengthen the company's position in the market. It's a way
of staying competitive by developing innovations that can disrupt an industry or even create
entirely new industries.

Need Corporate Entrepreneurs?

 More new competitors with better ideas

 People losing trust in old ways of managing companies
 Smart workers leaving big companies to start their own businesses
 Competition from companies around the world
 Big companies getting smaller
 A push to work more efficiently and get better results

Objectives of Corporate Entrepreneurship

 Encourage new ideas and creativity in the business

 Build a company with an entrepreneurial spirit
 Work in teams to get things done
 Look at the business as a smart, adaptable organization
Characteristics of Corporate Entrepreneurship

 New Business Creation

 Venturing
 Innovativeness
 Self-Renewal
 Proactiveness

Internal Factors Influencing Corporate Entrepreneurship

Several factors within a company influence its ability to innovate and encourage
entrepreneurial behavior:

 Compensation and Incentive System

  Organization Culture
  Top Management Support
  Organizational Structure
  Resource Availability
  Organization Policies
  Risk Taking and Failure Tolerance

Barriers to Corporate Entrepreneurship

 Resistance to change
  The Inherent nature of large organizations
   Lack of Entrepreneurial talent
  Inappropriate compensation methods

Independent Entrepreneurship: This is when an individual or group starts a completely

new organization on their own.

Corporate Entrepreneurship: This happens when someone, or a group of people, within an

existing company creates a new organization or brings new ideas and changes to improve the
company.

1. Corporate Venturing: This is when a company starts new businesses or divisions,

often based on innovations. These new ventures could either be within the company
or separate from it.
o External Corporate Venturing: This happens when the company creates a
separate entity outside the main company.
Examples:
 Joint ventures (partnering with other companies)
 Spin-offs (creating a new independent company)
 Venture capital (investing in startups)
o Internal Corporate Venturing: This is when the new ventures stay within
the company and become part of it.
Examples:
 New divisions
 Integration of new ideas into existing structures
2. Innovation: Innovation is about implementing new or improved products, processes,
or ways of doing business. It involves introducing fresh ideas that make the
organization better.
o Difference between Creativity and Innovation:
 Creativity is coming up with new, useful ideas.
 Innovation is successfully turning those creative ideas into real
changes in the organization.
3. Strategic Renewal: This refers to making big changes in a company’s strategy or
structure to improve its performance. These changes might involve new ideas,
innovations, or shifts in how the company operates. It’s about renewing the
organization, but not creating a new one.

Unit -2

Stimulating Creativity: Organizational Actions and Managerial

Responsibilities

What is Creativity?

Creativity is the ability to come up with something new and valuable. It can be an idea, a
theory, a song, or even a new product. Essentially, creativity is about finding new ways to
look at a problem Key points about creativity:

 It can be intangible (ideas or theories) or tangible (like inventions or art).

 It’s not just about having new ideas, but about ideas that are useful and relevant.
  Creativity involves taking things that already exist and combining them in unexpected
ways to create something new.

Types of Creativity

1. Technical Creativity:
o Also called "pure creativity."
o This involves creating new technologies or products.
2. Non-Technical Creativity:
o Known as "progress creativity."
o It focuses on creating new ideas for things like business strategies,
management styles, and organizational structures.

Four Types of Creativity in Entrepreneurship:

1. Deliberate and Cognitive Creativity:

o People with this type of creativity are very knowledgeable in a particular
field.
o They use their skills to solve problems in a planned and structured way. This
kind of creativity requires deep understanding and dedication.
2. Deliberate and Emotional Creativity:
o This is for people who are more emotional and sensitive.
o Their creativity is a mix of emotions and logic, often leading to emotional yet
well-thought-out ideas or products.
3. Spontaneous and Cognitive Creativity:
o This happens when someone struggles to find a solution at first, but then
unconsciously comes up with ideas after letting their mind relax.
o It’s about letting the subconscious take over after working through a problem
for a while.
4. Spontaneous and Emotional Creativity:
o This is the most elusive kind of creativity, often seen in artists or musicians.
o It feels like a sudden burst of inspiration usually driven by strong emotions.
o People with this creativity need a space that allows their emotions and ideas to
flow freely, even if their ideas aren’t clear at first.

Stimulating Creativity in Entrepreneurship

Creativity in entrepreneurship is about introducing new products, entering new markets,

using innovative production methods, and finding better sources of raw materials. It’s the

Importance of Creativity in Entrepreneurship

1. Creating Innovative Ideas: Entrepreneurship is all about coming up with new ideas.
Creativity is the skill that helps entrepreneurs find these fresh, innovative concepts.
It’s the process of thinking outside the box to solve problems or discover
opportunities.
2. Improving Products and Services:Creativity helps improve existing products or
services. It’s about finding new ways to make them better or different. With creative
 thinking, entrepreneurs can spot what’s missing or how to improve what already
exists.
3. Finding New Business Opportunities: Creativity can help discover new business
niches. This could involve changing how things are made, how they’re delivered, or
even how services are provided. It’s about looking at the traditional business model
and changing it to meet new needs.
4. Driving Success: Success isn’t just about intelligence—creativity plays a key role.
Creative employees or entrepreneurs can bring fresh ideas that transform a
business. When creativity is nurtured, it can be a major factor in a company’s
success.

Techniques for Stimulating Creativity

we can stimulate creativity within ourselves and our teams. This can help a business become
more innovative and competitive. Here are some techniques to help boost creativity:

1. Mind Mapping: This technique helps you brainstorm ideas by starting with a central idea
and branching out into related thoughts.

1. Write the problem or main idea in the center of a page.

2. Draw lines from the center and add keywords or ideas at the ends of each line.
3. Let your mind flow and create connections between these ideas.
4. Finally, analyze the combinations to see what makes sense.
 Goal: This method helps free your mind from blockages and encourages thinking in
new ways.

2. SCAMPER: SCAMPER is a checklist to help improve an existing product by asking

questions. It encourages thinking about how things can be changed.

 SCAMPER stands for:

o Substitute: Change parts, materials, or people.
o Combine: Combine things in new ways.
o Adapt: Use something differently or add new functions.
o Modify: Change the size, shape, or format.
o Put to another use: Use something in a completely different way.
o Eliminate: Remove unnecessary parts or functions.
o Reverse: Flip things upside down or change the order.
 Goal: It’s a simple tool to find ways to improve or create something new from what
already exists.

3. Brainstorming: A technique used to generate ideas by creating an open, relaxed

environment where everyone feels free to share their thoughts.

1. Encourage quantity of ideas first—don’t worry about whether they are "good"
or "bad".
2. Focus on thinking unconventionally and not limiting ideas based on
judgments.
3. Over time, refine the best ideas into more quality solutions.
 Goal: Brainstorming helps build an environment where everyone can think
creatively without fear of judgment, leading to unique and unconventional ideas.
 2.1.2. Organizational Actions to Enhance Creativity:

 Develop an acceptance of change.

 Encourage new ideas.
 Exchange of information.
 Tolerate failure.
 Provide clear aims and liberty to achieve them.
 Healthy relationships
 Provide a clear mission objective.
 Create an atmosphere of safety, trust and respect.
 Make your ideas visible and tangible
 Provide an infrastructure and resources
 Capture best practices and mistakes to learn from.

Managerial Responsibilities in Building a Creative Team

As a manager, one of your key responsibilities is to build and maintain a creative team that
is efficient, productive, and innovative. This involves several key actions and strategies

1. Having the Right People

 Skills: Make sure your team members have the necessary technical skills (like
software or other tools) and the experience to perform their jobs well.
 Workplace Fit: Beyond technical abilities, it's important that team members fit into
the company culture. They should have the right personality and soft skills to work
well with the team.
 Team Size: Ensure the team is neither too small nor too large. Having the right
number of people helps keep things efficient and manageable.

2. Having the Right Process

 A successful team isn't just creative, it's also productive. To achieve this, managers
need to:
o Set clear expectations like deadlines and schedules so everyone knows what’s
expected.
o Ensure the team is working towards specific goals with a well-organized
approach.

3. Providing the Right Leadership

 A good team leader must have the technical skills to understand the work but also be
able to inspire and motivate the team.
o They need to communicate openly, encourage problem-solving together, and
create an atmosphere where failure and risk-taking are allowed.
o Leaders should focus on:
 Open communication within the team.
 Encouraging team-based problem-solving.
 Creating a safe environment where it's okay to make mistakes and try
new things.
4. Creating the Right Environment

 The physical space where the team works matters too. A creative team needs a
collaborative and inspiring workspace.
o using spaces where people can freely collaborate and share ideas, such as an a
conference room for brainstorming.
o An open, comfortable workspace encourages creativity and collaboration.

5. Providing the Right Vision

 It's essential that the creative team understands the bigger picture. They should
know:
o The purpose of the project, department, or company.
o How their individual work contributes to the overall mission.
 When everyone understands how their work fits into the larger goal, they are more
motivated and aligned in their efforts.

Creative Teams: Nurturing Innovation and Collaboration

Creativity is all about transforming ideas into action and giving projects that extra edge.
Creative teams play a key role in this process by combining different talents and skills to
produce innovative outcomes. Here’s what creative teams usually do:

 Understanding client needs and objectives to create tailored solutions.

 Developing ideas that can be used across different platforms, such as advertising or
marketing campaigns.
 Keeping up with media trends and competitor activities to stay innovative.
 Encouraging younger or less experienced creatives to think outside the box.
 Carrying out tasks with creativity, flair, and professionalism to drive success for both
the agency and clients.

Creativity doesn't just happen; it’s built on a foundation of knowledge and practice. It
involves:

 Experimenting with ideas.

 Exploring new ways of thinking.
 Questioning what's been done before and challenging the usual way of thinking.
 Using your imagination and mixing information from different places.

For a team to be truly creative, they need a broad set of skills, including:

1. The ability to come up with fresh ideas.

2. Being comfortable using creativity to solve problems and create new concepts.
3. Experience in the relevant fields.
4. Being able to share and present ideas confidently, both internally and to clients.
5. A drive to deliver the best quality work every time.
6. Creativity should lead to campaigns that deliver tangible results.
7. Excellent written and verbal skills to explain and promote ideas.
8. The ability to think literally (practical) and laterally (innovative).
10 Rules for Building an Effective Creative Team

1. Diversity Is Key: Don’t just fill your creative team with people from the same
background. A mix of skills and experiences from different areas, like marketing,
design, and tech, will bring in fresh perspectives and ideas.
2. Reward the Team, Not Just Individuals: Reward the whole team for creative ideas,
not just individual achievements. This encourages teamwork and collaboration, rather
than selfish competition or secrecy.
3. Teams Are Not Forever: Teams can get too familiar with each other, which can lead
to predictability and boredom. Change team members every 18-24 months to keep
things fresh and innovative.
4. Encourage Communication Between Teams: Teams can learn a lot from each other.
Organize meetings where different teams share their ideas and feedback. But avoid
excessive meetings that might distract from actual creative work.
5. Foster Friendly Rivalry: Light-hearted competition between teams can motivate
them to push themselves without creating too much stress. A bit of fun competition
can spark creativity.
6. Train Team Leaders in Creative Thinking: Leaders should know how to encourage
creativity, motivate their team, and guide the creative process. Too much criticism too
soon can squash creative ideas, so team leaders must balance feedback with support.
7. Solve Conflicts Quickly: If team members don’t get along, it can harm the team’s
creativity. Resolve issues quickly to avoid damaging the group dynamic.
8. Break Down Hierarchies: In creative teams, try to reduce power imbalances. When
everyone feels equal, it’s easier for people to share ideas and contribute without
worrying about pleasing a boss.
9. Provide Resources for Creativity: Make the workspace inspiring. Think beanbag
chairs, toys, art supplies, or even books that can spark ideas. Hands-on tools like
Legos can also help visualize and brainstorm new concepts.
10. Focus on Results, Not Just Methods: Set clear goals, but let teams choose their own
path to get there. Sometimes stepping outside the office—like visiting a museum or
going for a walk—can help spark creative ideas that you wouldn’t get stuck in a
meeting room.

What is Innovation?

Innovation is all about creating something new or improving what already exists to bring
value and efficiency to a business. It helps businesses grow by introducing new products,
services, or ways of doing things.

For example, the first telephone was an invention, while the first smartphone was an
innovation because it improved on the phone and added new features. Innovation takes an
idea and turns it into something useful or valuable, often with the goal of creating wealth or
solving problems.

Famous Innovators:

 Steve Jobs: Created the smartphone industry with the iPhone.

 Marie Curie: Made groundbreaking discoveries in radioactivity.
 Elon Musk: Developed electric cars with Tesla.
 Nikola Tesla: Innovated in electric power transmission.
  Thomas Edison: Invented the light bulb.

Innovation Process

Innovation is a process of making intentional changes that create value. It involves:

 Process: Innovation is a step-by-step process.

 Intentional: It’s done on purpose.
 Change: It leads to something new or different.
 Value: The goal is to create value for the economy, society, or individuals.
 Opportunity: Entrepreneurs create value by finding new ideas, turning them into
useful products, and making the most of the opportunities available right now.
 Advantage: At the same time, they create value by making the most of the
opportunities they already have.

Types of Innovation:

1. Invention: Creating something completely new that hasn’t existed before.

2. Extension: Expanding on an existing product or service and making it work
differently.
3. Duplication: Copying an existing product or service and adding your own twist.
4. Synthesis: Combining multiple existing products or ideas into one new innovation.

7 Sources of Innovation in Business (Peter Drucker):

1. The Unexpected: Sometimes, innovation happens by chance. People can discover

new ideas or products when they least expect it.
2. Incongruities: This is about thinking differently. It’s not just about competing with
others; it’s about finding creative ways to solve problems by looking at things from a
new angle. For example, Steve Jobs thought differently when he created the iPhone.
3. Process Need: If there's a gap or something missing in a process, you can find
innovative ways to fix it. Look for problems in how things are done and create a
better solution.
4. Changes in Industry and Market Structures: Markets and industries change, and
sometimes those changes can lead to unexpected innovations. Stay aware of shifts in
your market and adapt.
5. Demographic Changes: Changes in population, like aging populations or shifting
preferences, can open up opportunities for new products or services. Pay attention to
how demographics are changing around you.
6. Changes in Perception: People's perceptions of an industry or product can change
over time. As society views things differently, new opportunities for innovation can
arise.
7. New Knowledge: As science and technology evolve, new knowledge creates room
for innovation. Think of things like nanotechnology or artificial intelligence—new
discoveries lead to game-changing innovations.

Creativity, Innovation, and Entrepreneurship: How They're Connected

  Creativity is all about thinking in new ways. It’s about coming up with fresh ideas
and seeing problems or opportunities from a different angle.
 Innovation is doing those new things. It’s about taking creative ideas and turning
them into real-world solutions that improve people’s lives or make society better.
 Entrepreneurship is where creativity + innovation come together. Entrepreneurs
take creative ideas, apply them, and turn them into businesses or products that meet a
market need.

How to Manage Innovation and Creativity in Organizations:

There are a few key ingredients to help individuals or teams become more creative:

1. Expertise
2. Creative Thinking Skills
3. Intrinsic Motivation

On the company-wide level, you need the right environment to support creativity and
innovation:

 Motivation to Innovate: The company should encourage new ideas.

 Resources: Having enough time, money, and people to work on creative projects.
 Managerial Practices: Support from leadership, offering challenging work and
encouragement.

How to Increase Innovation in Your Organization:

1. Create an Open, Creative Work Environment: Companies like Google let

employees work on personal projects, which sparks creativity. You may not have that
much freedom, but encouraging communication, positivity, and reducing stress can
help boost creativity. Simple things like snacks, fun activities, and low-stress
environments help ideas flow.
2. Motivate Your Team: Offer positive rewards like bonuses, extra time off, or even
public recognition to keep employees excited and motivated to contribute new ideas.
3. Encourage Diversity: A mix of different skills, backgrounds, and viewpoints helps
prevent “groupthink,” where everyone just agrees on the same things. The more
diverse your team is, the more creative ideas they can come up with.
4. Provide the Right Tools: Just like carpenters need more than a hammer, your team
needs the right tools to help them innovate. Make sure they have everything they need
to succeed.
5. Create Innovation Teams: Set up teams with people from different backgrounds and
skill sets whose main job is to come together and brainstorm new ideas. This ensures
the best chance for creativity.
6. Don’t Penalize Failure: Innovation often involves failure. If your team fears
punishment for trying new things that don’t work, they won’t take risks. Encourage
experimentation and always have a suggestion box for ideas—even anonymous ones.