Chapter Three

Entrepreneurs, Managers, and Employees

© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.

McGraw-Hill/IrwinIntroduction to Business

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Learning Objectives

1. Describe the nature of entrepreneurship. 2. Identify how the process of creative destruction

leads to the emergence of new companies and raises a society’s standard of living.

3. Appreciate the problems involved in aligning the interests of a manager with those of a company’s owners.

4. Distinguish the three different levels of managers and understand the different roles they perform to increase efficiency, effectiveness, and profitability.

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The Role of the Entrepreneur

• Entrepreneur - a person ready to supply the enterprise –

energy, boldness, courage, spirit, expertise – necessary to start and grow a business

See the qualities of an entrepreneur at sideroad.com

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Commercial Opportunities

• First mover advantage - the competitive advantage gained by being

first to develop a new product or process

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Organizational Opportunities

• Intrapreneurship - Entrepreneurial activity that takes place

inside an established company

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Risks of Entrepreneurship

1. Entrepreneurs often overestimate their ability to create new products

2. Entrepreneurs underestimate how difficult it is to reach prospective customers

3. Entrepreneurs may not realize how much ready cash is needed to see a small business through its critical “birth” period

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Why Be an Entrepreneur?

• Entrepreneurs are often driven by the challenge of creating valuable new goods and services

• Many entrepreneurs are intrinsically motivated

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The Agency Problem

• Delegate - giving up decision-making authority to other

people

• Agency problem - the problem that arises because of the

separation of the ownership and control of a business

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The Agency Problem

• Managers - employees to whom a company’s owners

delegate responsibility for using its resources to create profitable goods and services

• Stock options - the right o buy a stock at a certain price

and to benefit from increases in the stock’s value in the future by selling it

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The Agency Theory Problem

Figure 3.3

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Levels of Managers

• Board of directors - experienced business executives from

inside and outside of a company who are elected by their company’s shareholders to act as their representatives

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Levels of Managers

• Chief executive officer - a company’s top manager, responsible for

overseeing the operations of the company

• Top managers - employees who are responsible for

developing a company’s business model and ultimately responsible for its success or failure

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Levels of Managers

• Middle managers - employees in charge of a company’s

various functions - responsible for using resources

productively to increase its profitability

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Levels of Managers

• First-line managers - employees at the base of the managerial

hierarchy - often called

supervisors

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Levels of Management

Figure 3.4

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Levels and Types of Managers

Figure 3.4

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Profitability: Efficiency and Effectiveness

• Efficiency - a cost-focused measure of how

productively a company’s resources are being used to produce goods and services

• Effectiveness - a revenue-focused measure of how

competitive the firm’s business model is

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The Relationship Between Efficiency, Effectiveness, and Profitability

Figure 3.6

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Four Functions of Managers

Figure 3.7

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Managerial Functions

• Planning - a process that managers use to select the

best business model and goals for their company

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Managerial Functions

• Organizing - a process managers use to create a

company’s organizational structure

• Organizational culture - the set of values, norms, and beliefs shared

by members of an organization that determine how well they work together to further the company’s goals

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Managerial Functions

• Leading - the ability to develop a plan and motivate

others to pursue it

• Cross-functional team - a group of people from different functions

who work together on a particular project

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Managerial Functions

• Controlling - the process of evaluating whether or not a

company is achieving its goals and taking action if it is not

• Benchmarking - the practice of comparing a business’s

strengths and weaknesses to those of its competitors

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The Role of the Employee

• Role - the set of tasks a person is expected to

perform because of the position he or she holds in an organization

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Career Management

• Mentor - a person who provides advice, guidance,

and technical knowledge to other people (mentees) in order to help them advance their careers

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Video – The Syl Tang Story

Syl Tang is a Chinese American woman living and working in New York City. She is the CEO of HipGuide.com, an entrepreneurial business she pioneered.

1. If HipGuide.com founder and owner Syl Tang were to choose the right goals to pursue for the business model but does a poor job in the area of efficiency, what is the likely result?

2. What qualities does Tang have that ensure her success as an entrepreneur?