Chapter 12: Small Business Marketing Plans: Integrating the 4 P S

Chapter 02 - Small Business Environment: Managing External Relations

CHAPTER 2: SMALL BUSINESS ENVIRONMENT: MANAGING EXTERNAL RELATIONS

Chapter Summary

This chapter covers the main elements on the environment. It first discusses what is included in this environment. The balance of the chapter focuses on managing external relations and addresses legitimacy, social networking, crisis management, sustainability and ethics.

Learning Objectives

After studying this chapter, the student should be able to:

1. Discover the elements which make up the small business environment.
2. Develop your ability to scan the small business environment.
3. Learn the techniques of building legitimacy foryour organization.
4. Explore the techniques of social networking.
5. Learn the basic skills for handling a crisis.
6. Gain insight into how small businesses can achieve sustainability.
7. Identify the major steps in making ethical decisions insmall business.

Focus on Small Business:

Tim Hayden and the Missed Home Run

Tim Hayden was at Busch Stadium, the home of the St. Louis Cardinals, when Mark McGwire hit his record breaking 70th homerunof the season, however, he missed it as he was in line at the concession stand. He realized that his friends at home had instant replay from every angle and all sorts of other graphics and other things that he didn’t, and Tim surmised that this could be a reason for reduced attendance at most stadium events. However, his friends didn’t have the excitement of watching a game in person. From this “Aha!” moment, Hayden decided that a WiFi web-based application accessible to a fan’s PDA or cell phone could give them the best of both worlds.

Discussion Questions

1. What were the different types of data Tim used to figure out the problem of reduced attendance?
   He used his personal observations and experience at the stadium along with what he know about the alternative – staying at home – and its advantages. He also tapped into his knowledge about available technology.
   
2. What kind of data do you think would have been most useful and why?
   His technology knowledge was probably the most useful as it presented possible solutions to his problem. Other data he might have needed would be more information about the demographics of those attending games, especially how technology savvy they were and the likelihood of them owning the electronic equipment he proposed using. [NOTE: Other answers could be successfully proposed and supported as well.]
   
3. Do youthink the change in fan behavior came about from changes insociety (fan demographics) or in technology?
   While society may have a role – more younger, technologically savvy fans – technology is clearly a strong focus here.

1. What do youthink was key to Tim’s making the jump from a problem to a business opportunity?
   Answers will vary, but clearly Tim was responding to a personal problem – missing Mark McGwire’s 70th homerun.
   

Extended Chapter Outline

Note: Key terms are in boldface.

Teaching tool Internet application

International application Group activity

Objective 1: Discover the elements which make up the small business environment.

1.1All aspects of the BRIE Model are interwoven with the environment.

1.1.1Becoming aware of one’s environment – all the forces outside the firm or individual entrepreneur – canbe a good source for inspiration, the intention section of the BRIE model.

1.1.2In following the BRIE model, a founder creates a boundary within the environment to set his firm apart, giving the firm an identity.

1.1.2.1The identity shows what the firm does and where it does it.

1.1.2.2This includes formal aspects – registration – and informal, such as the firm and the entrepreneur being one and the same.

1.1.3In using the BRIE model, founder also gathers resources from the environment.

1.1.3.1These resources include information, funding, space, raw materials and other items.

1.1.3.2When the economy is strong the resources are plentiful; when it is not, the founder may have to resort to bootstrapping.

1.1.2The exchange part of the BRIE also involves the environment as exchange is literally the firm buying, selling or trading across the boundary with the environment.

1.2The environment is huge, but can be divided into three parts:

1.2.1The internal environment consists of everyone inside the boundary.

1.2.1.1As a firm matures, it adds to its organizational culture.

1.2.2The external environment includes everything outside the firm’s boundary. It consists of two parts:

1.2.2.1The task environment is those parts which directly touch the firms.

1.2.2.1.1This includes customers, suppliers, distributors, partners, subcontractors, government, media and many others.

1.2.2.1.2Since this group is dealt with on an ongoing basis, it is sometimeseasy to miss trends and changes with them as they are so close.

1.2.2.2The second part of the external environment is the general environment and represents the major forces on a small business:

1.2.2.2.1The economic sector includes general market conditions and trends.

1.2.2.2.2The technological sector involves innovation, invention and modernization.

1.2.2.2.3The sociocultural sector in concerned with cultural trends such as religion, fashion and other elements.

1.2.2.2.4The demographic sector includes factors such as age, race, gender and the like.

1.2.2.2.5The political-legal sector reflects what’s happening in law, government and politics.

1.2.2.2.6The international sector includes pressures from countries outside the US.

1.2.2.2.7The ecosystem and infrastructure sector incorporate the physical world – raw materials, weather, cities, roads and the like.

Objective 2: Develop your ability to scan the small business environment.

2.1Small businesses must scan their environments to see trends that may affect their businesses.

2.1.1Read trade or professional press articles

2.1.2Ask your customers, suppliers and others in your task environment.

2.1.3Keep notes of things that bother you about how work is currently done or how something has changed and research to see how others feel about it.

2.1.4Subscribe to magazine, newsletter, blogs or other sources outside your area of business.

2.1.5Take time to review the notes you have taken and your observations.

2.1.6Don’t be afraid to make a bad decision, but plan to revisit your decisions to see if they should be reversed.

2.2Once you know the sectors of the environment and where to find information, it’s time to learn how to manage this information.

2.2.1There are five approaches to managing relations with the environment –externalrelations.

2.2.1.1Building legitimacy

2.2.1.2Developing a social network

2.2.1.3Handling a crisis

2.2.1.4Achieving sustainability

2.2.1.5Making ethical decisions

2.2.2The goal of managing external relations is to create social capital – trust, consistency, and other things that make the business run more smoothly.

2.2.2.1Businesses with high social capital are trusted and more fairly treated.

2.2.2.2Social capital can be accumulated, spent, and increase the value of your firm (goodwill).

Objective 3: Learn the techniques of building legitimacy for your organization.

3.1Building legitimacy is one way of building social capital.

3.1.1Legitimacy simply means that customers and suppliers believe that the firm is worthy of doing business with.

3.1.1.1There are three general forms of legitimacy:

3.1.1.1.1People-based legitimacy comes from having employees that are well-known or well-regarded, achieving public recognition (owner or the firm), selling brand name merchandise, belonging to trade and business associations, professional attire like uniforms and similar factors.

3.1.1.1.2Product based legitimacy comes from having publicly stated guarantees, super customer service, meeting or exceeding quality standards, ISO certification, winning the Baldridge Award, customer testimonials, trademarks, patents and other such factors.

3.1.1.1.3Organizational-base legitimacy comes from being visible in the media, operating for a long time, having “regular and normal” hours of operation, having a dedicated phone line answered by humans, being a corporation, partnership, or LLC, having a code of ethics and similar factors.

3.1.1.2Most business will not incorporate all 30 legitimacy factors, but should attempt to have two or three from each category and lock them in.

Objective 4: Explore the techniques of social networking.

4.1Building a social network is another way of achieving legitimacy.

4.1.1Social networking builds trust, reciprocity and long-term relationships.

4.1.1.1Networking helps identify people who could be useful to the firm and to whom you can be useful – mutuality.

4.1.1.2Your reputation helps build your network and your network helps build your reputation.

4.1.2Knowing who to ask for help is only the first step; more important is building the relationship or partnership with them.
Social networking has ethical implications:

4.1.2.1Ask for help, but be respectful of the time and effort you are requesting.

4.1.2.2Be willing to reciprocate when asked.

4.1.3Networking also has the ethical implication of being willing to share as much information as you request and provide social support and approval.

4.1.4Social networking is much easier with the Internet including sites such as Facebook.com and MySpace.com.

4.1.4.1If you plan to rely primarily on social networking you should:

4.1.4.1.1Make it easy for people to contact you.

4.1.4.1.2Ask others to link with you.

4.1.4.2Find and link-up with network mavens.

Objective 5: Learn the basic skills for handling a crisis.

5.1Sooner or later, all businesses will face a crisis; knowing what to do can be a very specialized and emotionally demanding form of decision making.

5.2There is a six step procedure that can help:

5.2.1Admit you’re in trouble – quickly.

5.2.2Get to the scene as soon as possible. Show caring and accountability.

5.2.3Communicate facts you know (and those you don’t) to employees, customers and suppliers.

5.2.4Have one person serve as the firm’s spokesperson. It is best if it can be the owner.

5.2.5Separate crisis management from the everyday management of the firm.

5.2.6Deal with the crisis quickly. Take steps to solve the problem, and make the process of dealing with the problem as open as possible.

5.3The Federal Government has put a number of disaster resources together at They recommend a three step process:

5.3.1Plan to stay in business.

5.3.2Talk to your people.

5.3.3Protect your investment.

Objective 6: Gain insight into how small businesses can achieve sustainability.

6.1Sustainable entrepreneurship identifies or creates and then exploits opportunities to make a profit in a manner which minimizes the depletion of natural resources, maximizes the use of recycled material, and/or improves the environment and is sometimes known as green entrepreneurship.

6.2How can a small business do this?

6.2.1Recycle.

6.2.2Conduct a green audit.

6.2.3Have a LEED certified building

6.2.4Green retailing – selling products that have a better environmental footprint.

Objective 7: Identify the major steps in making ethical decisions in small business.

7.1Ethics are a system of values used to make decisions about what is right and wrong.

7.2Unfortunately these decisions often involve a number of choices where our ethical values may conflict – an ethical dilemma.

7.3Ethical decision making for small businesses is a three step process:

7.3.1Define the moral problem. This is done by asking the following four questions:

7.3.1.1Who will be hurt and how badly?

7.3.1.2Who will benefit, and how much?

7.3.1.3What do you owe others, if anything?

7.3.1.4What do others owe you, if anything?

7.3.2Generate alternatives that could meet the ethical, legal, and economic goals every business must balance.

7.3.2.1Consider the economical standards, but don’t underestimate the feeling of being taken advantage of.

7.3.2.2Understand that people are rarely 100% legal, and sometimes there are options that aren’t dictated by what is legally supported (e.g., working out a problem rather than taking someone to court).

7.3.2.3Ethical standards can be easier to evaluate if the industry has a code of ethics.

7.3.2.4A commonly used principle, caveat emptor, as a legal principle has been discredited and is now the first line of defense by frauds and other less ethical “businesspeople.”

7.3.3Implement by selecting the best alternative you and your business can live with.

7.3.3.1Selecting this alternative means considering the ethical implications, something that may be aided by considering four ethical philosophies.

7.3.3.1.1Golden Rule or am I treating others the way I’d want to be treated?

7.3.3.1.2Utilitarianism or is my solution the best thing for most people?

7.3.3.1.2.1The action resulting in the greatest good for the greatest number of people is the correct one.

7.3.3.1.2.2This rule considers the long term view.

7.3.3.1.3Universalism or what if everybody did what I want to do?

7.3.3.1.3.1This concept is key to your upbringing, religion, and education as well as companies’ codes of ethics.

7.3.3.1.3.2Based on a code of what is right and what is wrong accepted by a particular society.

7.3.3.1.4Billboard Principle or how would I feel if my decision (with my name) was posted on a billboard in my home town?

7.3.3.2The best outcome is where both sides feel satisfied (or at least about the same) with the result.

7.3.3.3If youget a response that seems to reject the entire proposal, ask if there was a point from whichto build a better version.

7.3.3.4If this doesn’t work be ready to talk about your BATNA, your best alternative to a negotiated agreement.

7.4Acting in an ethical fashion is important; there are costs with illegal and unethical behaviors.

7.5Innovations can challenge the status quo and push limits as to what is acceptable and what is not.

7.5.1While innovation can be one of a small firm’s greatest assets, it is also an opportunity for ethical issues and other problems.

7.5.2Successful innovations often make a small business a target for big businesses with deeper pockets.

7.6Ethical decision making probablyrepresents one of the most complex and difficult kinds of external relations management situations a small business owner will need to face.

7.7On a everyday basis, doing the following can help:

7.7.1Craft codes for legitimacy, social networking, sustainability, crisis management. and ethical decision making.

7.7.2When hiring employees, subcontractors or service providers, make sure you share your expectations about these items.

7.7.3Try using minor external relations lapses as learning experiences.

7.7.4When counseling around external relations issues, remember:

7.7.4.1Do not get emotional.

7.7.4.2Be specific about what the problem was and why it violated the ways things are supposed to be done.

7.7.4.3Work out what future behavior should be.

7.7.4.4Be consistent.

7.7.5Remember that you are the role model for social networking and legitimacy.

Key Terms

Baldridge Award: an award given by the US government to businesses that have been judged outstanding in seven measures of quality leadership.

BATNA: the best alternative to a negotiated agreement.

Billboard principle: an ethical model which posits if the person would be comfortable having their decision and name advertised on a billboard for the public to see.

Bootstrapping: using non-traditional ways to finance a startup such as maxing out your credit cards, bartering and others.

Caveat emptor: Latin for “let the buyer beware.”

Environment: all the forces outside the entrepreneur or his firm.

Ethical dilemma: a situation which occurs when a person’s values are in conflict, making it unclear whether a decision he or she is thinking about making is the right thing to do.

Ethics: a system of values that people use to determine whether actions are right or wrong.

External environment: everything outside the firm’s boundary.

External relations: managing relations with the environment.

General environment: the major forces on businesses beyond the task environment.

Golden Rule: an ethical model which suggests you treat others in the manner you wish to be treated.

Green entrepreneurship: another term for sustainable entrepreneurship.

Identity: the basic description of what a firm does and where it does it.

Internal environment: everything inside the firm’s boundary

Innovation: the behavior of creating something new, or trying something for the first time.

ISO: stands for the International Standards Organization and refers to a certification for having met a standard of quality that is consistently evaluated around the world.

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.

Mutuality: the idea of each person helping the other.

Networking: interaction with others done to build relationships useful to the business.

Organizational culture: a set of shared beliefs or basic assumptions or common, accepted ways of dealing with problems and challenges within a company that show how things get done.

Social capital: characteristics of a business like trust, consistency, and networks, which represent potential social obligations which are an asset of the firm or entrepreneur.

Social network: the set of relations and contacts with individuals and institutions.

Sustainable entrepreneurship: an approach to operating the firm which identifies or creates and thenexploits opportunities to make a profit in a manner which minimizes the depletion of natural resources, maximizes the use of recycled material and/or improves the environment.

Task environment: components of the external environment that directly relate to a firm performing its basic tasks.

Trade magazine: a magazine that targets a particularindustry or profession.

Universalism: an ethical model which believes there is a code of right and wrong that everyone can see and follow.

Utilitarianism: an ethical model which seeks the greatest good for the greatest number of people.

Discussion Questions

NOTE: Many questions allow for a number of different answers. Below are some suggestions

1.What is the difference between the General Environment and the Task Environment? Is it possible to say one is more important to a small business than the other?
The task environment consists of components of the external environment that directly relate to a firm performing its basic tasks, while the general environment consists of all other items on the external environment.
The task environment may be more important on a day-to-day basis – more urgent – than the general environment, but both are important.