creative and innovative aspects that shape up the business

 creative and innovative aspects that shape up the business

A firm is an organization, company or enterprise that employs productive resources with the aim of obtaining or making products and services presented in the market in quest of making a profit. Also to note, not all organizations are firms. Therefore it should be distinguished that what differentiates a firm from an ordinary organization is the aim to make profits by selling products and services in the market. Another thing is that firms attain there intended ultimate goal by transforming the resources available into finished products and services. To note also, firms use different types of resources in their productive process. These resources are divided into; natural resources, capital, human resources and entrepreneurship. Natural resources are those taken directly from nature exclusive of any transformations e.g. air, wood, land, and water. Capitals refers to the funds needed for investment in technology, machinery, tools and equipment. As for the human resources, these are the physical and intellectual capabilities of the workers. Finally, entrepreneurship refers to the creative and innovative aspects that shape up the business.

The difference obtained from the revenue raised from the marketing of the products and services and the costs incurred in the whole productive process is the profit. If this results into a positive figure then it implies that the firm is adding value in its production and therefore indicating that the firm is adding value on those resources put in place. On the other hand if the figure obtained is negative then it implies that the firm is devaluating the resources laid down. Therefore, the process of value creation is a continuous one which a great number of interrelated firms take part. For example, putting into consideration the industry dealing with packaged milk. There is a long chain of firms which come together in order to deliver the end products to the consumers or rather customers.

In this case the chain begins with raw materials such as feedstuffs, pastures and cows that farmers put together with veterinary services, chemicals, and goods that require capital (machinery and tools) to acquire raw milk, which is then collected and transported in special trucks to processing plants. At this particular stage, the milk undergoes some transformation such as pasteurization, homogenization, vitamin fortification, etc. After which, the different varieties of processed products are packaged into appropriate and relevant  containers (glass, carton, plastic) and then transported to  the various distribution points where it is finally made available to end customers.

This then leads us into the neoclassical paradigm. This refers to the dominant framework and approach that economists use for analyzing and checking on how the economy works. In regard to this world view, firms, workers and consumers make a rational calculation pertaining what is in their own interests and wants. Then the aggregate of all these behaviors that are motivated rationally, is used to come up with predictions as to the quantities of goods and services that can be produced and made available plus the prices at which they can be sold. As a result many economists think of this approach as not only a literal description of human behavior but also as a disciplined tool for coming up with a trend and description of how a given market ought to behave.

In a comprehensive logic, there is the transaction cost approach theory. The transaction cost approach regarding the theory of the firm was created by Ronald Coase. This approach refers to the cost of giving or rather providing for some product or service via the market rather than having it provided from within the firm. Coase goes on to argue that in order for one to do a successful market transaction, it is fundamental and crucial to identify who it is that one wishes to transact with, to negotiate with hence lead to bargaining, to engage with in the contract, to undertake fully the inspection needed in order to e4nsure that the terms and conditions of the task or contract are met and so forth. This therefore results into the transition costs which include; policing and enforcement costs, bargaining and decision costs and search and information costs.

Coase goes further to argue that without taking into consideration the transaction costs, it will definitely be impossible to understand comprehensively the working and scope of the economy’s system and have a sound and clear basis for laying down the economic policy. Coase goes further to shed more light on the nature of the firm. He observes that the market prices govern and give direction on the relationships between firms but within the framework in which a firm decisions are made on a basis different from maximizing the profit. In fact, in a firm, decisions are arrived at through entrepreneurial coordination and working together. To note, there are a number of arrangements involved in the production process. For instance in agriculture, many at times, the labor personnel works on a daily basis while in other industrial fields the working force may be working on a long term period in that they are offered permanent contracts.

Therefore, a firm is a system that entails long term contracts that arise when short term contracts are inefficient and unsatisfactory. To note by, the unsuitability of short term contracts come into play from the costs of assembling information and the costs of bargaining contracts. This results into long term contracts whereby the remuneration is exact and specified on the one contracted and as a result there obeyance within the conditions and directives of the entrepreneur. Coase goes a step ahead to argue that the economic theory of the production stage of a plant or firm in the short run as well as the long run are well pointed out, but as for the theory on the size of the firm, it is not clearly and comprehensively framed out. It is sound on the issue of acquisition of firms by other firms.

Ronald Coase points out the origin of the “nature of the firm” as reason and course to the organization of the entire business unit .He also identified that there are instances where market transactions are inconvenient, but in case the transactions are not managed and directed by the price system, then an organization has to be put in place. The major objective to lay down a business management is to reproduce the terms and conditions of a competitive market as per the factors that are entailed in production within the firm at a relatively lower cost than the real market. Coase went further to give reasons why a firm exists to cut down costs yet there are market transactions put in place. First he pointed out that the organizational costs for additional transactions go up with scale and in addition they are equated together with costs of additional market transactions. Secondly, he stated that, an organization entailing bigger firms may fail to reproduce the effects of market conditions.

Furthermore, this transaction theory has got its own assumptions. TCT is generally based on a number of assumptions about human behavior and other environmental traits. These assumptions tend to explain why firms and organizations may face huge costs in relation to market-based dealings and transactions. Also these assumptions tend to elucidate on the reason why firms might be relatively of more efficiency compared to markets at organizing transactions. This is due to the fact that the firm has the liberty to extract its governance form from the diversified options within the organizational menu hence minimizing the production and transaction costs.

Assumptions of this approach on the humans and their behavior include the following; First is the opportunism with guile. Neoclassical, humans are perceived as selfish or rather self-interested. They tend to put their own interests ahead of everything. Opportunism with guile goes a step father to assume that humans may involve themselves in a behavior that is ex ante and ex post regarding to agreeing on contracts and dealings. This assumption is the core to TCT in that in the absence of this opportunistic behaviors and traits, contracts and transactions would be costless put in place resulting to no reason leading to other means of economic organization other than the market.

Secondly, is the assumption of bounded rationality. The neoclassical theory assumes that humans possess sufficient and relevant information and they behave like maximizers of utility with calculated rationalities. On the contrast, the transaction cost theory perceives individuals as bounded rational. This reflects the humans’ limited ability to produce large volumes of information and their difficulty in appropriating probable figures to the taking place of future events. It should not be misunderstood that this implies that human beings are irrational, in fact human beings are rational but to given limits of their ability. And in most cases these occurrences are as a result of imperfect and insufficient information owned by the individuals.

In addition, this approach also entails assumptions on the environmental characteristics. These assumptions include; first, there is asset specificity. This is defined as the durable investments and transactions undertaken in favor of a given dealings and transactions. This is in contrast with the neoclassical economics which regards exchanges of average nature. In this regard, transactions and dealings which receive support from investments within durable, specified transactions assets experience fixed effects. The second assumption is uncertainty. This is an open assumption and it differs with the relevant-information assumption of the neoclassical view. In this, the information on the past, current and future is not sufficiently known due to various reasons.in the absence of bounded rationality together with opportunism, the level of uncertainty could be much less of a problem because the overall rules would  prevail.

Thirdly, it is the assumption of frequency of the transactions. In case the transactions are not frequent, then the alternative governance structures costs may not justifiable. This is to say that the larger the volumes of transactions, the higher the justification for other governance structures e.g. the firm. Therefore it is advisable for one to note that the extent of the volume of transactions ranges from occasional to recurrent. In a comprehensive approach, there are three determinants of the transaction costs determined, namely; one, the agents’ bounded rationality. Two, it is the opportunism that amounts up when one of the parties involved pursues his own self-interest. Finally, it is the assets specificity which arises when the owners incur costs whenever they alter the uses of the assets.

Pricing is amongst the building blocks or rather the foundation of marketing. This appears to be easily understood but on the contrary it is amongst the difficult issues to literally understand. The thinking behind this wrong things is because virtually everyone buys and sells commodities that have prices posed on them and a good number of have it in the back of their minds that in order for one to make a profit he she has to sell a commodity more than it costs. In the real sense, to come up with the real and actual price of a commodity is not trivial. To note, deciding on the relevant price of a commodity is hectic because on top of the physical factors pertaining cost and profit, there exists the psychological factors, some of which are beyond the firm’s control. Therefore it remains the companies’ role to do their best in order to try and card this psychological factors by doing a magnificent branding.

In order to have this branding done best the companies have to know to create a fascinating image about their products. Therefore this is toughest language that can be posed over the firms. Once a firm is able to take control of this then they shall have gotten it right when it comes to matters of increasing prices for their products. With this being put in place, a firm will stand a better chance to employ the most effective and powerful of all pricing strategies-What the Market Will Bear (WTMWB)

In continuation, there other factor that determine the prices of the goods and services available in the market. The most essential factor identified by most firms as the core determination of the prices in the market is the highest level that a market bear. Also another essential factor that is used to set the price of a commodity is the relation between the competitors in t the market. This is majorly applicable in the manufacturing industry and the retail sector. This mainly due to the oligopolistic competition that is present in this two sectors. To conclude, another noticeable factor is the firm’s specific factors .

To begin with is the issue of how what the market will bear affects the prices of commodities. In the event where in a market there exists little or no competition, companies can put in place a pricing strategy that increases profits. This strategy lays the price based the largest price the market will be in apposition to pay for a given product. On the other side , a firm would wish to make the greatest profits possible over a short period of time to aid in curbing high initial costs of production e.g. the research and development ,production and marketing costs. Also in another perspective, the firm may want to avoid its profits from being too attractive in order to avoid enticing more investors into the sector in order to escape a stiff competition.

Another factor is the gross profit margin target. In most instances, pricing measures ought to start with a gross profit margin target (GPMT) strategy. Firms typically are informed on the gross profit margin that they are required to repay back to their expenses incurred and generate a positive income and flow of cash. Once a firm is informed on the cost of goods and services sold and all the gross profit margin target it entails, it can be ease and very much practical to put into use the GPMT strategy. This results to the definition of the gross profit margin which is the price less the cost of sales. Unfortunately, some firms opt to ignore this method but luckily there exists some guidelines which help them out. These guidelines include, first the manufacturers aim for a GPMT of 50%. Secondly, distributors or wholesalers require a GPM of 10% -15%. Thirdly, Dealers or rather retailers need a GPM of 30-50%.

As a result, the price to be laid down in order to achieve the above GPMT is as follows; for the manufacturers, P=2C then for the distributors it is P=1.18C, and finally for the dealers the formula is P=1.5C. Taking into consideration products that will be sold to consumers, most firms put in place the most significant digit (MSD) pricing strategy. This is because studies and research indicate that sales will be relatively higher if a product is priced at lower value. In case a product is placed as unique, good marketing companies will typically use all the strategies in combination.

Precisely a firm needs to know on how to price their products.  While pricing products, what gives firms control over the price is the uniqueness laid down into the positioning and branding of a firm. If a firm has created an impossible or difficult perception on a product, it can employ a WTMWB price approach that will result in a good and admirable GPM that pillars the achievement of the intended GPMT. On the other hand if a firm is sold at the consumer market, then it would be advisable to employ an MSD price approach.

The ability to provide employees with motivation is one of the greatest and essential skills or rather strategies an entrepreneur can lay down. Some of these strategies that an entrepreneur can lay down in order to increase productivity within working personnel include the following.  First, as an entrepreneur one needs to be generous with praise. Everyone needs it and it’s one of the simplest things to give. In addition, praise from the CEO goes a lot farther than you might imagine. Praise each improvement attained that u an notice or that you see your team members make. Once you’re comfortable giving praise one-on-one to the working personnel, try praising them in the presence of others.  

     Secondly, Get rid of the managers. Projects with the absence project managers?! That doesn’t seem possible n practical! Try it. Removing the project supervisor and empowering your staff generally to work together as a team rather than everyone reporting to a single individual can do wonders. Think about this. What’s worse than letting your supervisor or manager down? Or Letting your entire team down! Allowing people to work collectively as a team, on an equal standard with their co-workers, will often result to better projects faster. The working staff, will come in early, stay late, and devote more of their energy to solving problems.  

   The third motivating factor is Make your ideas theirs. Employees dislike most being told what to do. Instead of telling them what you could wish to be done; request them in a way that will make them feel like they founded and owned with the idea. As in, “I’d like you to do it this way” is turned out into “Do you think it’s a good idea if we do it this way?” fourthly, never criticize or correct. No one, and it mean no one, would want to hear that they did something wrong or off topic. If an entrepreneur wants or rather is looking for a de-motivator, this is it.  If it is a must that an entrepreneur communicates a mistake to the workers then Try an indirect approach to get people to improve, learn from their wrong deeds, and then fix them. Questions like the following can serve the purpose better;, “Was that the perfect approach  to work out  the problem? Why not? Have any other alternative ideas on what you could have executed differently?” Then you’re having a conversation and talking through solutions, not pointing a finger.  

The next motivating factor is Make everyone a leader. Highlight and identify your top and best performers’ strengths and let them get informed that because of their excellence and good work, you would want them to be the example for others. You’ll set the level high and they’ll be motivated to attain and work towards their reputation as a leader. In addition to this, another motivating factor is offer a meal voucher to an employee once a week.  As an entrepreneur, you should Surprise them. Don’t make them aware that you’re establishing a new policy. Literally walk up to selected members of your employees, and take them along with you to lunch . It’s a simple way to remind them that you are aware of them and that you appreciate their captivating work.  

In conjunction to the above factors, give recognition and small rewards. These two things come in diversified forms: Give a motivation to someone in a company meeting for what she or he has accomplished and achieved. Carry out contests or internal games and keep record of the results on a visible point that everyone can see. Valuable awards that don’t cut off the bank can work out too.  Also as an entrepreneur, Try things like dinner, trophies, and other valuable stuff. Another factor is that Throw company parties. Doing things as a group or as a firm can go a long way in improving productivity. Also you can include a company picnic. On top of that organize birthday parties. Hold a happy and marvelous hour. Don’t just sit and wait until the holidays in order to do a company activity; organize events throughout the year o remind your staff that you’re all in it together. Also, Share the rewards—and the pain. When your company does well, celebrate. This is the best time to let everyone know that you’re thankful for their hard work. Go out of your way to show how far you will go when people help your company succeed. If there are disappointments, share those too. If you expect high performance, your team deserves to know where the company stands. Be honest and transparent. 

A transfer price is the price at which divisions of a company transact with each other, such as the trade of supplies or labor between departments. Transfer prices are used when individual entities of a larger multi-entity firm are treated and measured as separately run entities.