Chapter 2 Literature Review
2.2.3 Entrepreneurial Skills
According to the management school of entrepreneurial thought, entrepreneurship can be developed through the imparting of certain technical skills and competencies (Cunningham and Lischeron, 1991). Various authors such as Choo and Wong (2006), Robeltson et al (2003), Lee and Osteryoung (2001) and Yusuf (1995), point to aspirant entrepreneurs being deten"ed from embarking on entrepreneurial activity by their perceived lack of business and managerial skills. In one particular GEM survey it was found that individuals who believed they had the necessary business skills to start a business were four to six times more likely to be engaged in entrepreneurial activity than those who did not believe they were sufficiently skilled or knowledgeable. This was in fact a leading influencing factor when compared with factors such as social networks and
market oppOltunity (Orford et ai, 2004). Thus it is apparent that within our holistic view of entrepreneurship, developing these generic business or managerial skills is being seen as crucial in increasing the pool of entrepreneurs. An altemate way of looking at this assertion is to incorporate the argument of Gibb (1996). This author states that there is strong and sufficient evidence of a positive con'elation between executive education - Master of Business Administration (MBA) courses - and new business start-ups. This led to calls for further tailoring the syllabi of business courses to the kind of managerial competencies and techniques that accommodate the needs of aspirant entrepreneurs as well as corporate managers (Gibb, 1996). The correlation points to MBA graduates being more confident in their technical ability to run a successful business and hence embarking on entrepreneurial paths.
Brown (2007) explains what the key areas of competency are that any aspirant entrepreneur needs an understanding of when looking to start a new business. These are considered crucial especially during the start-up and business infancy phases, when managelial resources tend to be generalized and centralized, although it must be noted that the entrepreneur need not master all of them as a precondition of business ownership and/or success. In adapting and expanding on the work of Brown (2007) these
• competencies are explained in further detail below:
l. Finance/Accounting: New business owners need to understand issues such as optimal financing mechanisms, basic tax knowledge and the importance of cash flow management. The ability to read basic financial statements such as a balance sheet and income statement is often core to gaining successful financial knowledge. If one has no real understanding of these concepts, then measurement of business success or troubleshooting of potential failure is often not possible.
2. Human Resource Management: In introducing the concept of human resource management Longenecker et al (2000: 409) refer to staff as " ... possibly the most vital of all resources in a film's operations". This requires that the entrepreneur understand a wide variety of human resow'ce issues including the attraction and
retention of suitable employees, basic labour law, motivation and training of staff and maximizing employee productivity.
3. Operations: This involves controlling the processes that create value and are core to the production of a good or service. Production scheduling, cost monitoring, supply chain management and the creation of efficiencies through the product life cycle are as important as understanding the physical production or service process.
4. Marketing and Sales: The small business marketing and sales functions, though crucial to business success, are often overlooked by many new entrepreneurs who tend to be (over)confident that their product or service is good or unique enough to sell itself. This is seldom the case and new product ideas can be of no value unless backed by sufficient market demand. Thus an aspirant business owner needs to take cognisance of those activities that can identify the target market, detennine the significance and potential of that market and deliver the COtTect mix of product, price, and distribution channel to satisfy the market (Longenecker et ai, 2000). Once accomplished it is necessary to raise awareness of the business through branding, advertising and other selling strategies.
5. Customer Service: In a world where competition is rife and it is seldom for products or services to have no competitors, a new firm can distinguish itself by providing exceptional customer service. Thus new business owners should take the lead in instilling a business culture that ensures customers are satisfied in all dealings with the finn.
6. Infonnation management: This is a function of managing the business infonnation resources in order to enhance decision making. The entrepreneur needs to know how the infonnation streams on which the business is run will be organized. The increasing prevalence of computers in business places infonnation technology at the vanguard of infonnation management. Such technologies may include point-of-sale systems, online purchasing tools as well as database and customer infonnation management.
7. Administration: It is a misconception that administration refers to completing 'paperwork". Business administration in a management sense is essentially a co-
ordination function that ensures all other business areas of activity run smoothly.
Typical tasks include propeliy management, security control, clerical functions, communications, legal understanding and project management.
2.2.4 New Venture Creation
Having undertaken a detailed review of the entrepreneurship concept and its influencing factors both from an environmental and personal attribute perspective it is now important to comment on a key entrepreneurial function identified in the definitional framework, that of new venture creation. If as the definition states, entrepreneurship is about the capability to create a new business venture by seeking out significant opportunities, then one needs to understand what is behind this process. Chrisman (1999) finds it important to analyse venture creation from the point of view of entrepreneurial intentions because not all entrepreneurial ventures are necessarily realised. Thus by identifying and understanding what contributes to strong, wilful intention, one is able to infer on the probability of a new venture being realised (Chrisman, 1999). Such entrepreneurial intentions are derived from perceptions that a new venture would be both desirable and feasible. This would then be coupled with a tendency to respond to and seize new opportunities, which we have identified, as an entrepreneurial defming factor. Previous business-related experiences contribute to these perceptions. Perceptions of desirability are significantly associated with the positiveness of the related experience while perceived feasibility has a strong association with the extent of such experience (Krueger, 1993). Simply put this means that positive and strong previous business exposures are more likely to make oppOliunities seem viable, and strengthen the venture creator's will to realise the benefits of the 0ppOliunity. It is not an implication that previous business experience is necessary for entrepreneurship or venture creation.
Having gleaned a strong understanding of the entrepreneurship concept and its key constructs, the final part of this chapter moves into the franchising realm with the objective of understanding it conceptually and narrowing down the discussion until the concepts of franchising and entrepreneurship can be related theoretically.
2.3 Franchising
This section is essentially a reVIew of franchising as a business organisational and ownership form. Franchising and its main protagonists are introduced and described. The nature of the franchise relationship is then discussed. A brief scan of the global and South African franchise regulatory environments is delineated thereafter and this is followed by a shOlt contextual commentary on the role franchising is seen to play in global economic development, with the final theme presented being a critical analysis of the relationship between franchising and entrepreneurship.