SEM 14.1 T 1. 1 ADVERTISING AND MARKETING COMMUNICATION

SEM 14.1 T 1.

TOPIC 1 ADVERTISING AND MARKETING COMMUNICATION.

By the end of this topic, you will be able to:
1. Explain the marketing communication concept and the elements within;
2. Recognise the elements in marketing communications;
3. Observe advertising concepts and their relationship in marketing communications; and
4. Identify advertising communication models and how they differ from other communication models.

LEARNING OUTCOMES

1.1 MARKETING COMMUNICATIONS
Generally, human communication is divided into various types: individual
communication, group communication, organisation communication, inter-
cultural communication, inter-racial communication and mass communication.
Communication is an important area in the field of marketing, and as a subject of
research. For successful marketing, more people or staff should be involved in
the communication process either within or outside the organisation because
every organisation needs to handle different target audiences, or in this context,
the target market.

1.1.1 Marketing Communication Concept

Marketing communications is similar to promotion. Actually, ‘marketing
Communication’ is regarded as a new term compared with the term ‘promotion’,
and marketing experts now tend to use the term 'marketing communications' to
avoid confusion with the word 'promotion'.
The term 'promotion' is always linked to sales promotion, which is one of the
aspects of real promotional activities represented by marketing communications.
This means marketing communications not only involve sales promotion and
advertising, but also public relations, personal selling and other elements in the
marketing communication mix. So, marketing mix is regarded as the stepping
stone to marketing whereas marketing communication mix is regarded as the key
to marketing communications.

SELF-CHECK 1.1
The challenge in marketing communications is how to convey the correct message in an efficient way to the audience at the right place and time. Think about the meaning of:
 The right message
 The efficient way
 The real audience
 The right place
 The accurate time

Another term related to marketing communications is corporate Communications. Blauw E. in Pickton & Broderick defines corporate communications as integrated approach to all communication produced by an organisation directed at all relevant target groups.
Van Riel, in the same book, defines it as communication with three forms management communication, organisation communication and marketing communication (see Figure 1.1).

Management communications is defined by Van Riel as the most important form among the three and it involves communication between the manager and the internal audience as well as the external audience. Organisation communications involves different types of communication activities and this includes internal communications, corporate advertising, public relations and other corporate-level  types of communication. Marketing communications involves communication that supports the sale of products and services. This means marketing communications also involves corporate communication, because the image and perception of the organisation have a great impact on its products and services.

Figure 1.1: Description of corporate communications by Van Riel
(Pickton & Broderick, 2005)

1.1.2 Marketing Mix
Marketing mix is also known as the 4Ps. The term and classification were
introduced by E. Jerome McCarthy; however, the term marketing mix was

conceptualised by Neil Borden from Harvard Business School in 1948 and
became popular after he mentioned it in his speech during a function organised
by the American Marketing Association in 1953.
Marketing mix is analogised as a ‘recipe’ that contains different elements to
produce a product that satisfies the customer when it is blended or mixed
correctly. These elements are described by Borden as comprising 12 subjects:
 Product planning
 Price determination
 Branding
 Advertising
 Promotion
 Packaging
 Display
 Personal selling
 Distribution channel
 Physical handling
 Service
 Facts analysis

Borden shortened the list, by summarising it into four elements, namely Product,
Price Determination, Place Determination and Promotion · are also known as
the 4Ps. One of the ‘P’s is promotion related to marketing communications. See
Figure 1.2:

Thus, marketing communications can be summarised as all the elements of
promotion which involve communication between an organisation and the
target audience on issues related to marketing coverage.

Figure 1.2: Elements of marketing mix or 4Ps introduced by Neil Borden
There are researchers who further shortened part of Borden’s list to Promotion,
which covers Branding, Advertising, Packaging, Display and Personal Selling.
However, Borden’s list excludes other elements of promotion, such as Public
Relations, which is regarded as important in marketing communications. This
has resulted in researchers including it in their list.

1.1.3 Marketing Communication Mix

Marketing communication mix is also known as ‘promotion mix’. According to
Crosier (1990), both terms contain the same idea in the context of the 4Ps.
Although ‘marketing communications’ carries a wider meaning than
‘promotion’, their general meaning is the same.
Up till now, the easiest way to classify marketing communication mix is through
the four elements proposed by various marketing experts such as DeLozier
(1976), Kotler et.al. (1999), Crosier (1990), Shimp (1997) and Belch & Belch (1995).

They suggested four elements as below:
 Advertising;
 Public Relations;
 Personal Selling; and
 Sales Promotion.
Marketing communications refers to all the elements of promotion in the
marketing mix that involve communication between the organisation and
the target audience on all the subjects dealing with marketing performance.

Figure 1.3: Classification of marketing communication mix
Based on Figure 1.3, the different types of marketing communication activities
are separated from each other and are regarded as individual categories and
classified as independent activities. However, the real situation is not like this.
There is an important link between one category and another or between one
activity and another. For example, there are activities that overlap between
public relations and advertising. Branding, for instance, is not confined to public
relations. Similarly, corporate advertising or advertorials are not merely forms of
advertising.
Try to think what categories activities such as commerce fair, sales exhibition and
telemarketing fall under. What about business talks and sales gatherings with tea
breaks?

Figure 1.4: The overlapping of marketing communication mix
So, it can be said that Figure 1.4 is more suitable and realistic because activities
overlap. Branding, corporate advertising and product placement are advertising
activities that overlap with public relations.

Exhibitions, merchandising and trade sales are sales promotion activities that
overlap with personal selling.
In the same way, event management, lobbying, public-worker relationships are
categorised as public relations activities that overlap with personal selling. Sales
promotion activities that overlap with advertising are direct response advertising
and direct mail incentives.

1.2 ADVERTISING
Advertising is a main element in marketing communications. The other elements,
as elaborated earlier, are public relations, personal selling and sales promotion.
Each of the elements have different and special activities focusing on
communication.

1.2.1 Advertising Concept
Advertising started a long time ago and has become one of the important and
prevalent activities in promotion or marketing communications. However,
advertising should be distinguished from other marketing communication
activities. Below are the definitions of advertising given by a few authors.

Table 1.1: Definition of Advertising
Definition of Advertising Source
 Any paid form of non-personal presentation and
promotion of ideas, goods or services by an identified
sponsor.
Kotler et al. (1999)
 Paid non-personal communication from an identified sponsor using mass media
to persuade or influence an audience.
Wells et al. (1992)
 Combines the definition given by American Marketing Association and Gilson-
Berkman as below:

“Non-personal communication or information that is usually paid for and usually
persuasive in nature about products, services or ideas by identified sponsors
through various media”.
Bovee & Arens
(1982)
From the definitions above, we can conclude that advertising has these
characteristics:
Ć Non-personal communication
Ć Paid communication
Ć Persuasive communication
Ć Product, service or idea communication
Ć Identified sponsor
Ć Usage of mass media

1.2.2 Advertising Communications
As one of the areas of communication, advertising is different from the other
types of communication because it has more specific characteristics, especially in
the source of the message, quality of message and the use of media.
The source of advertising communications consists of a few stages as explained
in the advertising communication model (Topic 1.1.3). Advertised messages are
conveyed in different forms, either verbally or audio-visually, depending on the
media used.
These media are both traditional and non-traditional. Traditional media are the
main media in print and electronic form. Most of the external media are in
printed form, but in recent times many print media are employing electronic
elements. Non-traditional media consist of other forms such as balloons,
calendars, business cards, souvenirs, clothes, matchboxes and whatever items
that can be distributed to the target market.
Advertising is regarded as very important in marketing communications because
the expenses involved are higher than other forms of advertising. Although the
other elements need to be chosen and combined effectively with it, the
advertising element is important because of a few basic considerations:

Ć Wide coverage with the ability to reach the mass audience because the mass
media used tend to cover a wide geographical area either locally or
internationally.
Ć With more accurate targeting, it can reach selective audiences. This happens
when there are more media and the content as well as the target audience are
more specific.
Ć Low unit cost because the cost borne will remain the same, especially the
fixed cost even though the audience has increased.
Ć Economical, effective and efficient in reaching the mass audience. Effective in
brand maintenance and brand development.
Advertising is an area of marketing communications because it is used as a
tool to convey marketing messages.

1.2.3 Advertising Communication Model
Advertising is one of the knowledge disciplines in the field of mass
communications or media studies. The advertising field has developed until it
has become one of the knowledge disciplines that interest many communications
and marketing scholars. Therefore, a few theories and communication models
have been proposed to simplify the research work and analyse the advertising
practice academically.

One of the models is the Advertising Communication Process Model proposed
by Barbara Stern based on basic communication models. Stern sees advertising as
a type of structured text but not an informal speech. ThatÊs why her model shows
that the sources, messages and receivers have different dimensions. Some of
these dimensions exist in the real world while the rest exist in different reality
stages.

In the oral communication model, the source consists of the individual who
conveys the message to other individuals or a group of individuals. In
advertising, the situation is rather complex because the real source is not the
person who conveys the message. If it isn’t, then who is the source or the actual
communicator?

The real source is the sponsor, the party officially responsible for the
communication and who has a message to convey to the audience. Therefore, the
Stern model can be featured as in Figure 1.5 below.
Figure 1.5: The Stern advertising communication process model
The model shows that the advertising communications source has three stages,
which are the sponsor in stage one, the author in stage two and the persona in
stage three.
Ć The sponsor is the advertiser that usually consists of a company or an
organisation. They have certain messages to convey.
Ć The author is the source or person who produces the message as instructed
by the sponsor.
Ć The persona is the source who conveys the message. The spokesperson is
used to convey the message. They loans their voice and personality for the
purpose. For the consumer, this is the source that represents the company,
which is the sponsor. However, the discourse or message conveyed is
produced by the author for advertising purposes.
Based on Figure 1.5, the communication path from the sponsor to the audience is
long and winding, which is through the author (copywriter) to the persona
(actor, announcer and demonstrator). This means the source in advertising
communication has at least three tiers, which are the sponsor, author and
persona.

The message from the source is conveyed in different literary forms to the
different levels of consumers. These are the special strategies planned to ensure
that the aim of the communication is achieved.
There are also different categories of source receivers, which Stern has divided
into external consumers, sponsored consumers and real consumers. External
consumers are the potential group that is identified during the production
process of the advertisement.
Apart from that, there are sponsors who consist of decision makers in an
organisation or company that sponsors the advertisement. They are also
categorised into the advertisement message receiver group because as the
financial decision-makers and advertising campaign verifiers, they have to
evaluate the advertisement and make certain responses that affect the fate of the
advertisement.

1.3 OTHER ELEMENTS OF MARKETING COMMUNICATIONS
As stated earlier, marketing communications covers various elements namely:
Ć Public relations;
Ć Personal selling;
Ć Sales promotion; and
Ć Advertising.
The subtitle below will elaborate on those elements but excludes the topic
‘advertising’ which was discussed earlier.

1.3.1 Public Relations Marketing
What is the difference between advertising campaigns and public relations
marketing?
To answer the question, we need to first look at the meaning of public relations.
According to the Public Relations Institute of the United Kingdom, public
relations is the planned and sustained effort to establish and maintain goodwill
and mutual understanding between the organisation and its publics.
According to Tom Duncan (2005), the list of responsibilities and functions of the
public relations department is as follows (Figure 1.6):
Figure 1.6: Responsibilities and functions of the public relations department
according to Tom Duncan (2005)
Public relations is the communication activity aimed at forming an
understanding between the organisation and the audience, where the
audience consists of interested parties such as the customer, supplier,
shareholder, staff and so on.
Therefore, ‘public relations’ is definitely a concept, a profession, a management
function and a practice with the main aim to form an understanding and a good
relationship between the organisation and interested parties.
To foster a good relationship, the organisation needs to perform different types of
public relations activities as shown in Table 1.2. The table also shows the civilians
or public that becomes its audience.

Table 1.2: Activity and Audience of Public Relations
Activity Description Publicity

 Communication programme, product promotion and branding to target the
customer and target audience.
 Differs from advertising, and the identity of the person organising the publicity
function usually will not be revealed, and this increases the credibility because it
will appear as though the journalist or commentator prepares it.
Media Relations
 Activity to disseminate information about the organisation
to the media.
 Activity to foster a good relationship with the media such as
the journalist and the chief editor.

Corporate Communication
 Programme that focuses on corporate identity, reputation
management and strategic counselling for higher
management.
Worker Relationship
 Internal communication programme to provide workers and staff with
information.
Investor Relationship
 Information programme for the community of investors:
investors, analysts and financial papers.
Crisis Management
 General plan to handle the company reaction in the event of a disaster.
In these cases, public relations certainly cannot be separated from marketing.
This is because public relations have an important function in carrying out the
promotion.

There are many public relations functions that overlap with marketing functions
even though they have independent functions. At the same time, some of the
functions are related. Some of them also support each other to accomplish the
objectives of public relations and marketing. The overlapping area mentioned by
the marketing and public relations experts is known as marketing public
relations. Table 1.3 below shows the definition of marketing public relations.

Table 1.3: Definition of Marketing Public Relations
Definition of Marketing Public Relations Source
The marketing oriented aspect of public relations. The
narrow aspect of public relations involving an organisation’s
interaction with consumers and other public regarding
marketing matters.
Shimp T.A. in (Pickton & Broderick 2005)
The process of planning, implementing and evaluating the
programme that encourages purchase and customer
satisfaction via trusted information communication to
accommodate the company and organisation according to
the need, demand, care and interests of the customers.
Harris in (Pickton & Broderick 2005)
Based on the comprehensive scope covered by marketing public relations, it is
apparent that different types of activities can be used for marketing
communication campaigns.
Those activities include media release, media conference, media relationship and
entertainment as well as publicity functions. Table 1.4 illustrates the diversity of
these activities.

Table 1.4: Special Activities of Marketing Public Relations
Special Activity Description Media release Information provided by the media in the
form of press release, video release, media pack and other documents.

Media conference
A function that invites journalists and media editors so that they can provide
coverage on the programme or product being launched.
Media relations Long-term good relationship fostered by publicity officers, PA
agents and media experts with journalists and editors.
Publicity functions and stunt.
Special activity to catch the public’s attention; it is called a stunt if it is
extraordinary or spectacular such as flying with a balloon carrying the company’s
logo to celebrate the organisation’s anniversary.
Lobby Activity to gain a good reputation among the authorities in a company, an
organisation or a leader.
Promotional item
All forms and types of items used in the marketing public relations campaigns.
Advertorial Paid advertisement but its presentation make it appear as an editorial
subject to increase the credibility of the information in it.
Sponsor and contribution
Fund contribution for an activity carried out by an individual or organisation. The
aim may be altruistic but normally it is expected to achieve marketing or corporate
objectives.
Corporate identity item
Covers all types of company stationery or sign boards that have the logo, symbol
and colour of the company. These become an important part of marketing
communications.

Company website.
Promotional activities via the Internet that provide information on the
organisation.
Corporate publication
Publication produced by the organisation for its publics such as workers,
shareholders and customers.
Publication work done either by the organisation itself or external publishers given
the task. Some of the important types of corporate publications are internal
magazines and customer magazines published in various forms such as amphlets,
bulletins and glossy magazines.
The annual report is another important type of corporate publication while
corporate video is in audio-visual form.
Exclusive Marketing public relations activities cover as much media as possible but
sometimes an organisation decides to offer the exclusive rights of a piece of news
to specified media.

This increases the possibility of the news becoming the headline if it is suitable for
the target audience of the media.
Interview and photography session
One of the functions of marketing public relations is to provide a spokesperson or
representative for the organisation to interview or to provide a commentary,
performance and photography session. This enables the view of the organisation to
be presentated in an effective way.

Speech The representative or spokesperson of the organisation will give a speech
during a conference, industrial meeting, business party, public function and so on.
The speech is written by the public relations staff and the speech transcripts will be
distributed to the media as part of the media release.
As shown above, there are many types of marketing public relations activities.
These activities are carried out either externally or internally.
If they are carried out externally, the organisation needs to use the agency’s

service to complement the campaigns implemented internally.
Based on the activities above, the media release is the most basic marketing
public relations. The purpose of the media release is to catch the editorÊs
attention so that they will insert it into the media.

The main media used are the press release, radio and television. A media release
may be in the form of a simple press release but it can also be a complete media
pack. It includes information, photographs, video and audio tape, CD as well as
DVD. The Internet, web page, bulletin board and e-mail are used to produce the
release besides the traditional media mentioned earlier.

A media conference is a function to which reporters, journalists and editors are
invited. Usually, the press conference is held together with another important
ceremony or function. During the press conference, the reporter will usually be
given a media kit or press kit, which is a packet of information containing many
different items such as the function’s programme book, background information,
speech, history, pictures and all kinds of information needed about the
programme or product.
The different types of promotional items may be used appropriately in the
marketing public relations campaign. These items are:
Ć Corporate video;
Ć Newsletter;
Ć Magazine;
Ć Brochure; and
Ć Direct mail.

1.3.2 Direct Marketing Communications
One type of sales promotion is direct marketing.
It uses many media to offer something to the customer so that he/she is
encouraged to react directly. One of the important ways to respond is through
direct mail.

Direct marketing can also involve personal selling between individuals or via
telemarketing. It is clear that direct marketing is not only in the form of direct
mail but all kinds of potential direct media such as Internet communication,
telephone communication, and radio and television advertising.
Interactivity is important in direct marketing. This means there is a two-way
communication between an organisation and its prospect. Both can initiate their
communication. That’s why direct marketing is equivalent to direct response
marketing.
Direct marketing is a marketing communication system that stresses on
direct response from the audience.

ACTIVITY 1.1
An advertorial is a type of advertisement that resembles the editorial subject. The
Advertising Practice Code in certain countries demand that there should be a notice
saying it is an advertorial to avoid deception.

1. Give your opinion on what types of deception may take place?
2. In Malaysia, is there a notice stating that it is an advertorial?
3. Find an advertorial in the newspaper and elaborate on its characteristics.
4. Discuss: An advertorial is actually an advertisement, not a public relations item.
Basically, direct marketing is frequently used to encourage customers to make
their decisions, such as test driving, product tasting, showroom visiting and so
on, but many direct marketing activities are done to form a transaction. This
means that encouraging the customer to take action is important in direct
marketing.

Direct marketing usually uses offers and incentives to encourage reactions from
the customers. The offers promise visual or non-visual gifts by the company as a
reward for a customer's response.
Among the different types of offers are:
Ć Special price (for instance 20% discount),
Ć Purchasing term (for instance instalment),
Ć Guarantee (for instance five years guarantee) and others that involve
delivery, premium and image.

Incentive is also a type of offer. It can be a gift for a prompt response, loyalty
schemes that reward points for product redemption or other forms of incentives.
The important mechanism formed to enhance direct marketing is care lines such
as telephone, fax and e-mail. The audience can react directly through that
mechanism.
1.3.3 Personal Selling

However, some activities in personal selling overlap with sales exhibition
promotion, trade and merchandising sales, which include all kinds of activities to
ensure that the product is obtained easily and displayed clearly and attractively
at the place of sale. Usually, the roles of the salesperson can be split into two
which are:

Ć Service selling: Service selling obtains its sales from the existing customers.
Ć Developmental selling: Developmental selling turns prospects into
customers.
Personal selling is a promotional activity that excludes advertising, public
relations and sales promotion.
Figure 1.7: The two roles of the salesperson
Wilson K. J. in his article entitled Managing the industrial salesforce of the 1990s
in the Journal of Marketing 1993 (Pickton & Broderick 2005) stated that the daily
activity of a salesperson is no longer merely selling.

The new roles include:
Ć Partner
Ć Purchasing/selling team coordinator
Ć Customer service provider
Ć Information collector
Ć Analyst and market planner
Ć Sales forecaster
Ć Market cost analyst
Ć Technologist

Personal selling is an important component of marketing communications
specifically in external public activities and communication because it is flexible
and influential. The reason is that personal selling is not merely selling because it
is capable of maintaining customers, fostering a good relationship and projecting
a good image.
1.3.4 Trade Exhibition
Some of the trade exhibitions are places where the buyer and the seller meet.

There are also some exhibitions that are merely promotional tools without any
selling and purchasing activities.
No matter what the purpose, trade exhibition is only a transitory way to display,
introduce or sell the product. Normally, it is held with a special theme or in a
certain product category or for a certain audience group.
The two important areas in marketing communication covered by trade
exhibitions are activities related to:
Ć Selling and
Ć Activities related to promotion.

The type of trade exhibition held is different. There are small exhibitions carried
out in the shop itself; some are held in conjunction with a grand conference and
some are similar to international exhibitions with a lot of participation.
For the audience, some exhibitions are open to the public while some are
specifically for registered participants only or by invitation from the organiser.
In marketing communication, trade exhibition is an area that is not given much
focus but in terms of expenses, it involves large amounts of money and is carried
out by organisations mainly in their own form, from small exhibitions to grand
exhibitions held internationally.

This is because exhibition is regarded as an influential activity for the company to
convey a message to a large group face-to- face, while the cost is lower compared
with hiring a salesperson to do it directly.
In a research by Shipley et al. in year 1993 (in Pickton & Broderick 2005), it is
stated that the reasons to hold trade exhibitions are:
Ć Meeting new customers
Ć Strengthening the company’s image
Ć Interacting with customers
Ć Promoting existing products

Trade exhibition is a place to feature and demonstrate the product to
prospective customers.
Ć Launching new products
Ć Identifying competitor’s strategy
Ć Strengthening staff’s morale
Ć Interacting with suppliers

Ć Researching the market generally
Ć Taking purchasing order
Ć Meeting new publishers face-to- face

1.4 ADVERTISER AS COMMUNICATION SOURCE
Besides the message and media, another important component of marketing
communication is the advertiser itself. Advertisers are companies that serve as
the basic source of marketing communication messages, specifically advertising.
From the perspective of the advertising agency, these companies are clients who
provide the source message. They consist of the marketer, producer and
advertiser of all sorts of products, services or ideas. These companies comprise
government or private agency, business organisation or non-profit body.
Small companies may not afford costly marketing communication activities.
However, there are many alternatives for them in the advertising field. They can
use cheaper channels such as the phone directory, flyer, notice or sign board.
They may also use the local media with a smaller distribution and focus on
specific local areas only.
Big companies have larger annual provisions to enable them to place
advertisements in the different media and carry out public relations, sales
promotion and personal selling programmes. On the contrary, small companies
may not be able to spend consistently, but only according to their ability at
certain times only.

1.4.1 Advertising Company
According to Table 1.5, the main advertisers in Malaysia are telecommunications
companies, specifically Maxis, Telekom Malaysia Berhad, DiGi Telecommunications
and Celcom. The telecommunications industry has
developed significantly in recent years. Many of the telecommunications
companies are new but they have shown high performances in their promotional
activities.

For instance, Maxis only started its commercial operations in 1995 but it has
become a household name in the portable communications field and is the largest
company in this field in Malaysia.
Similarly, DiGi Telecommunications started its operations since 1995 and Celcom

was initially corporatised in 1998. These four large telecommunications
companies spent RM207 millions in 2002 and that accounted for 6% of the entire
advertising expenditure.

This was followed by food and beverage companies such as Unilever, Nestle and
Procter & Gamble. Unilever, which started with the name Lever Brothers in 1947
in a factory in Bangsar, has become a well-known name, Its factory, which is
worth RM12 millions through the production of margarine and soap, was
regarded as the biggest factory at the time. It is said that its machine can pack 124
pieces of soaps a minute. With its new name, Unilever (M) Holdings, in 1994, it is
famous for its Lipton®, Planta® and Wall’s® ice cream brands as well as the
brands of body care and cleansing products such as Lux®, Pond’s®, Dove®,
Hazeline®, Sunsilk®, Breeze®, Vim® and Jif®.

Another important group of advertisers are cigarette companies consisting of
British American Tobacco and JTI Trading Sdn. Bhd. Although cigarettes are not
an important product in advertising, these cigarette companies still spend a large
amount of money on advertising activities.
British American Tobacco Malaysia was established in November 1999 via the
merging of big cigarette companies Rothmans of Pall Mall (Malaysia) Berhad and
Malaysian Tobacco Company Bhd (MTC). The company manufactures, imports
and markets cigarettes under brands such as Dunhill, Kent, Pall Mall, Peter
Stuyvesant, Benson & Hedges and Perilly’s.
JTI Trading is a company corporatised in Malaysia which markets cigarette
products for the brands Salem, Winston, Mild Seven, Camel and More. Under the
JTI Group, companies such as Salem Power Station hold the licence of a network
of music shops, and companies such as Salem Holidays promote the tourism
service. Eagle Collection promotes clothes and men’s fashion under the brand
Winston, and Salem Cool Planet promotes entertainment services and products.
In the 1980s, the scenario was quite different, where tobacco products superseded
other products. In 1985, the top two advertising companies were Rothmans and
Malayan Tobacco, followed by Nestle and Malaysian Airlines.
Table 1.5: Main Advertisers in 2002
No Advertiser RM ,000
1 Maxis 73,273
2 Telekom (M) Bhd 66,567

3 Unilever Malaysia 50,259
4 British-American Tobacco 47,656
5 Nestle 44,025
6 Petronas 42,812
7 Procter & Gamble 37,844
8 DiGi Telecommunications Sdn. Bhd. 36,187
9 JT International Trading Sdn. Bhd. 31,984
10 Celcom 31,459
Source: Media Guide/AC Nielsen AdEx Report

1.4.2 Advertisement Expenditure Trend

Based on Table 1.6, advertisement expenditure in Malaysia has increased since
1990 from RM818.2 millions to RM3.4 millions in 2002. This is an increase of more
than 300% in 12 years time.
However, the increase was not consistent but fluctuated based on certain factors.
The highest increase was during the early years of the decade and the end of the
decade, when each had increased more than 24%. However, in 1998, there was a
significant drop of 17%, but this was the only decrease for the whole decade.

Table 1.6: Advertising Expenditure 1980-2002
Year Expenditure
(RM Million)
% Difference
1980 226 33.0
1984 401 77.4
1988 451 12.5
1990 818.2 81.4
1991 1016.3 24.2
1992 1128.0 11.0
1993 1440.8 27.7
1994 1673.9 16.2
1995 2022.0 20.8
1996 2413.5 19.4
1997 2631.6 9.0
1998 2178.6 -17.3

1999 2474.0 13.6
2000 3078.3 24.4
2001 3157.0 3.1
2002 3448.5 9.2
Source: SRM AdEx, Media Guide/AC Nielsen AdEx Report
Based on the media division, it is clear that a major part of advertising went to
the newspapers, followed by television, magazines, radio and the rest.
The newspaper channel controlled more than 60% of the share in the first three
years of the decade. The expenditure of RM360,000,000 in 1990 shot up to RM2.2
billions in 2002. The newspaper channel showed an increase from 40% in 1990 to
50% in 1993 and 60% at the beginning of 2000. It increased gradually, reaching
63% of the total advertising expenditure in 2002.
Television was the second most important media, covering 27% of the share in
2002 even though it has declined from 44% in 1990. During the decade, the
revenue percentage for television decreased consistently.
Despite this, , the actual figure for television expenditure increased yearly except
for 1998, when there was a decrease from RM780,224,000 to RM699,539,000 and
in 2001, from RM936,000,000 the previous year to RM878,000,000.
Magazines were in third place, capturing about five percent in 2002 and in the
past 10 years, between four and six percent. The highest percentage was in 1992
with around 10% and the lowest was four percent in 1999 and 2000.
Radio was in the fourth place with four percent in 2002 from a mere one percent
in 1990. For film and video, their shares were in the 0.4% range recently while
post advertising was slightly higher, with about 0.8%.
Table 1.7: Advertising Expenditure According to Media, 1990-2000 (Â000)
Year/
Media Magazine TV Radio Newspaper Video Film Post
1990 54.1 358.6 7.8 360.1 5.8 na na
1991 88.6 410.4 21.0 440.0 9.8 na na
1992 112.8 446.9 26.7 478.8 12.5 na na
1993 88.0 482.2 32.8 765.7 10.2 na na
1994 105.2 528.2 42.1 909.7 9.5 na na
1995 117.5 653.8 59.3 1,129.0 11.4 7.1 na
1996 121.5 772.4 71.5 1,407.8 10.2 7.4 na

1997 136.9 780.2 84.2 1,587.2 10.2 9.3 20.9
1998 111.3 699.5 65.5 1,261.3 9.7 10.7 20.6
1999 104.1 771.4 80.1 1,470.8 10.9 9.7 22.1
2000 131.2 935.7 102.0 1,866.2 9.4 9.7 24.2
2001 182.4 878.4 119.7 1,936.4 na 11.4 26.0
2002 158.1 921.8 144.1 2,186.5 na 9.7 28.3
Source: Media Guide/AC Nielsen AdEx Report
Table 1.8: Expenditure Percentage According to Main Media, 1990-2002
Year/Media Magazine TV Radio Newspaper
1990 7 44 1 44
1991 9 40 2 43
1992 10 39 2 42
1993 6 33 2 53
1994 6 32 3 54
1995 6 32 3 56
1996 5 32 3 58
1997 5 30 3 60
1998 5 32 3 58
1999 4 31 3 59
2000 4 30 3 61
2001 6 28 4 61
2002 5 27 4 63
Source: Media Guide/AC Nielsen AdEx Report

ACTIVITY 1.2
Based on Media Guide or other references, state the statistics of advertising
expenditure of the various industries or main companies. State also the media
usage in terms of advertising expenditure provisions.
 What is the advertising expenditure and media usage.
 What is the main media and what is the main media less focused on?
 What is the advertising expenditure trend for the past five years?
 Why is that so?
Advertising
Creative Boutique

Direct Marketing
Full Service Agency
Internal Agency
Marketing Communications
Media Kit
Media Release
Publicity
Stunt
SELF ASSESSMENT 1
1. What is marketing mix?
2. What is marketing communication mix?
3. Why is publicity more credible than advertising?
4. As an important element in marketing communication, advertising is the
choice because of some important factors. State all the factors.
5. What are the important tasks of a personal salesperson?

SELF ASSESSMENT 2
1. Think about some of the strengths of public relations or the other marketing
communication elements.
2. Draw and elaborate on the Stern model of advertising communication.
3. Apply the Stern advertising communication model to a special television
advertising campaign.
4. Identify and explain a type of special lobby that may be carried out by the
organisations below:
Workers Association, Tobacco Manufacturers Association, Parent-Teacher
Association.
5. Explain the similarities and differences between advertising and one of the
other marketing communication elements.

Reff
Arens, W. F. (2006). Contemporary advertising. (10th ed.). New York: McGraw-
Hill Irwin.
Duncan, T. (2006). Advertising and IMC. New York: McGraw-Hill Irwin.

Pickton, D. & Broderick, A. (2005). Integrated marketing communication.
London: Prentice Hall.
Varey, R. J. (2002). Marketing communication: Principles and practice. New York:
Routledge.

13.2 TOPIC 1 INTRODUCTION TO ENTREPRENEURSHIP

13 TOPIC 1 INTRODUCTION TO ENTREPRENEURSHIP

INTRODUCTION
Welcome to the world of entrepreneurship!
The economists of the eighteenth-century introduced entrepreneurship as a topic
for discussion and analysis and it continued to attract the interest of economists
in the nineteenth-century. In the twentieth-century, the word entrepreneurship
became synonymous with free enterprise. It was generally recognised that
entrepreneurs act as agents of change, provide creative, innovative ideas
for business enterprises and help businesses grow and become profitable.
Entrepreneurship is the symbol of business tenacity and achievement.
Entrepreneurship is important to individuals, society and the country and is

Topic 1
XIntroduction to Entrepreneurship

LEARNING OUTCOMES
By the end of this topic, you should be able to:
1. Explain the evolution and concepts of entrepreneurship;
2. Discuss the importance of entrepreneurship;
3. Identify the ten myths of entrepreneurship; and
4. Discuss entrepreneurship development in Malaysia.

recognised throughout the world as a catalyst for economic growth. This
topic discusses the evolution and concepts of entrepreneurship, the importance
of entrepreneurship, the myths of entrepreneurship and entrepreneurship
development in Malaysia.

THE EVOLUTION OF ENTREPRENEURSHIP
The word entrepreneur is derived from the French entreprendre, meaning „to
undertake‰. The evolution and development of the theory of entrepreneurship
can be summarised as shown in Table 1.1.
The concepts of the entrepreneur and entrepreneurship are elaborated further in
the following discussion.

Table 1.1: The Evolution and Development of the Theory of Entrepreneurship
Period Theory and Concept

The Earliest Period
An early example of the definition of an entrepreneur as a gobetween
is Marco Polo, who attempted to establish trade routes to the
Far East. As a go-between, Marco Polo would sign a contract with a
financier (capitalist) to sell his goods. The capitalist was a passive risk
bearer. The merchant-adventurer took the active role in trading, bearing
all the physical and emotional risks. Once the merchant adventurer
had successfully sold the goods, the profits would be divided
between the capitalist and the merchant-adventurer.

The Middle Ages
During this period, the term entrepreneur was used to describe both
an actor and a person who was in charge of and managed large
production projects. This person merely managed the projects using
the resources provided by the government. In this case, he did not
assume any risks. The entrepreneur in this age was the person who
was in charge of great architectural works, such as public buildings
and cathedrals.

The 17th Century

In this century, there was a connection between risk and
entrepreneurship. The entrepreneur was a person who entered into a
contractual arrangement with the government to perform a service or
to supply stipulated products. The contract price was fixed.
Therefore, any profits or losses were the entrepreneur's. During this
century, Richard Cantillon, an economist, developed one of the early
theories of the entrepreneur. He is regarded as the founder of the
term 'entrepreneur'. He viewed the entrepreneur as a risk taker.
The entrepreneurs in the 17th century as observed by Richard
were merchants, farmers, craftsmen and other sole proprietors. They
bought at a certain price and sold at an uncertain price, therefore
operating at a risk.
1.1

18th Century In the 18th century, the entrepreneur was differentiated from the
capital provider. This happened because of the industrialisation that
occurred throughout the world. Many of the inventions developed
during this time were reactions to the changing world. For example,
the case with the inventions of Eli Whitney and Thomas Edison. Both
Eli Whitney and Thomas Edison were developing new technologies
and were unable to finance their inventions. Eli Whitney and Thomas
Edison were capital users (entrepreneurs), not providers (venture
capitalists).

19th and 20th Centuries
 In the late 19th and 20th centuries, entrepreneurs were not
frequently distinguished from managers. In the middle of the
20th century, the notion of an entrepreneur as an innovator
was established. The function of the entrepreneur is to reform or
revolutionise the pattern of production by exploiting an invention or,
more generally, an untried technological possibility for producing a
new commodity or producing an old one in a new way.
21st Century Entrepreneurs in the twenty-first century are considered the heroes
of free enterprise. Many of them have used innovation and creativity
to build multimillion-dollar enterprises from fledgling businesses.
Entrepreneurs have created new products and services and have
assumed the risks associated with these ventures. Today, many
people regard entrepreneurship as „pioneership‰ on the frontiers of
business (Kuratko & Hodgetts, 2004).

CONCEPTS OF ENTREPRENEURSHIP
1.2.1 Entrepreneurship
According to Histrich and Peter (1998), entrepreneurship is the dynamic process
of creating incremental wealth. The wealth is created by individuals who assume
major risks in terms of equity, time, and career commitment or provide value for
some product or service. It is the process of creating something new with value
by devoting the necessary time and effort, assuming the accompanying financial,
psychological and social risks and receiving the resulting rewards of monetary,
personal satisfaction and independence. This definition focuses on four basic
aspects, as shown in Figure 1.1.
1.2
According to Peter Drucker, entrepreneurship is a discipline which can
be learned. What do you think of this statement? Discuss with your
coursemates.

ACTIVITY 1.1

Figure 1.1: The four basic aspects of entrepreneurship according to Histrich
and Peter (1998)
Entrepreneurship as defined by Kuratko and Hodgetts (2004) is a process of
innovation and new venture creation through four major dimensions:
(a) Individuals
(b) Organisational
(c) Environmental
(d) Process
Those dimensions are aided by collaborative networks in government, education,
and institution.

In recognising the importance of entrepreneurship in the twenty-first century,
Kuratko and Hodgetts (2004) have developed an integrated definition of
entrepreneurship as follows:
1.2.2 Who are Entrepreneurs?
Entrepreneurs are the pioneers of today's business success. Their sense of
opportunity, their drive to innovate, and their capacity for accomplishment have
become the standard by which free enterprise is now measured.
1. What is entrepreneurship?
2. What are the four basic aspects of entrepreneurship?

SELF-CHECK 1.1
Today, an entrepreneur is an innovator or developer who recognises and seizes
opportunities; converts those opportunities into workable or marketable ideas;
adds value through time, effort, money, or skills; assumes the risks of the
competitive marketplace to implement these ideas; and realises the rewards from
the efforts.
The meaning and definition of an entrepreneur varies with discipline. For
example, an economist sees entrepreneurs as those who bring resources,
labour, materials, and other assets into unusual combinations that make their
value greater than before and also those who introduce changes, innovations,
and a new order to generate profit. A psychologist defines entrepreneurs
at the behavioural term of achievement. To a psychologist, entrepreneurs are
individuals who are driven to seek challenges and accomplishments.
Although each of these definitions views entrepreneurs from a slightly different
perspective, they all contain similar notions, such as:
(a) Newness
(b) Wealth
(c) Organising
(d) Creating
(e) Risk taking

Entrepreneurs are catalysts for economic change who use purposeful searching,
careful planning and sound judgement when carrying out the entrepreneurial
process.
You are an entrepreneur who is about to open a franchise restaurant.
What should you do before you start your business? Present your
ideas in class.

ACTIVITY 1.2

THE IMPORTANCE Of ENTREPRENEURSHIP
Entrepreneurship is important in today's world. It is a catalyst for economic
change and growth. The role of entrepreneurship in economic development
involves more than just increasing per capita output and income. It involves
initiating and constituting change in the structure of business and society. This
change is accompanied by growth and increased output. One theory of economic
growth depicts innovation as the key for economic growth in developing
new products or services for the market. Innovative activities also stimulate
investment interest in the new ventures being created. Thus, entrepreneurship
through its process of innovation creates new investment of new ventures, which
result in economic development. As more ventures are being created, new jobs
will be produced, thus reducing the unemployment rate.
Entrepreneurship, through its creativity and innovation process produces new
products and services to fulfil human needs. It provides specific products or
services needed by customers. In producing goods and services, they will find
better ways to utilise resources, and reduce waste. For that, society will get better
goods and services at a cheaper price.
Entrepreneurship helps to improve the lives of millions of people through the
new products and services they bring to the market. Moreover, entrepreneurs
are also extremely generous in donating substantial portions of their wealth to
eminently worthy causes. Therefore, entrepreneurs are individuals who create
wealth, as well as promote wealth distribution.

What do you think is the importance of entrepreneurship to
individuals, society and the country? Discuss in class.

ACTIVITY 1.3

There are many myths about entrepreneurship. These myths arise because of
the lack of research on entrepreneurship. Kuratko and Hodgetts (2004) have
discussed ten myths of entrepreneurship as follows:

Table 1.2: The Ten Myths of Entrepreneurship
Myths Facts
Myth 1
Entrepreneurs are doers, not thinkers

Although entrepreneurs tend to be action oriented, they are also
thinkers. They are actually often very methodical people who plan
their moves carefully. They also have other alternatives set if
their plan fails. This shows that entrepreneurs are both thinkers
and doers.

Myth 2
Entrepreneurs are born, not made

Some entrepreneurs and non-entrepreneurs say that the
characteristics of entrepreneurs cannot be taught or learned.
Entrepreneurial characteristics are innate traits and one must
be born with it to become entrepreneurs. However, research
has proven that entrepreneurship can be taught and studied.
Entrepreneurship has models, processes and case studies that
allow it to be learned.

Myth 3.
Entrepreneurs are always inventors

Although many inventors are also entrepreneurs, numerous
successful entrepreneurs are not inventors. For example, Ray
Kroc did not invent the fast-food franchise but his innovative
ideas made McDonald's the largest fast-food enterprise in the
world. Successful entrepreneurs use creative and innovative
ideas in their ventures and these characteristics can be learned.

Myth 4
Entrepreneurs are academic and social misfits

This belief arises because some business owners started their
successful enterprise only after dropping out of school or
quitting a job. Historically, educational and social organisations
did not recognise entrepreneurs. Today, the entrepreneur is
no longer considered a misfit. They are now viewed as
professionals.

Myth 5
Entrepreneurs must fit the „Profile‰

Many books and articles have presented checklists of
characteristics of the successful entrepreneur. These lists were
neither validated nor complete; they were based on case studies
and on research findings among achievement-oriented people.
Today, we realise that a standard entrepreneurial profile is hard
to compile. Many successful entrepreneurs today did not have
all the profile of the successful entrepreneur when they started
their venture.

Myth 6
All entrepreneurs
need is money
It is true that venture needs capital to survive; it is also true that
a large number of business failures occur because of a lack of
adequate financing. To entrepreneurs, money is a resource but
not an end in itself.

Myth 7
All entrepreneurs need is luck

To be at „the right place at the right time‰ is always an
advantage. However, „luck happens when preparation meets
opportunity‰. What are important and needed for the
entrepreneur to seize an opportunity are planning, preparation,
determination, desire, knowledge and innovativeness.

Myth 8
Ignorance is bliss for entrepreneurs

„Too much planning and evaluation lead to constant problems‰.
This statement is not true in today's competitive markets. The
key factors to be successful entrepreneurs are detailed planning
and preparation. Entrepreneurs identify a venture's strength and
weaknesses, set up clear timetables with contingencies for
handling problems, and minimise these problems through
careful strategy formulation.

Myth 9
Entrepreneurs seek success but experience high failure rates

It is true that many entrepreneurs suffer a number of failures
before they are successful. In fact, failures can teach many
lessons to entrepreneurs and often lead to future successes.
Entrepreneurs always learn from their failures and also the
failures of others, which act as a form of guidance and direction
for their future

Myth 10
Entrepreneurs are extreme risktakers (gamblers)

The concept of risk is a major element in the entrepreneurial
process. However, the public's perception is that most
entrepreneurs are high risk-takers. In fact, entrepreneurs always
search for information and do planning before taking any action.
This means that entrepreneurs are usually working on moderate
and calculated risks.

These myths can provide a view of today's current thinking on entrepreneurship.
It also provides a framework and foundation for researching the contemporary
theories and processes of entrepreneurship.

Entrepreneurship has existed in Malaysia (Malaya) since the interaction of
Malacca with foreign traders. However, when the British colonised the Malay
Peninsular, they changed the structure of the society and practised the „divide
and rule‰ system in which the Malays were engaged in administration and
agriculture, the Chinese in mining and business, and the Indians in rubber
plantations. As a result of this system, the Chinese society was far ahead in
business compared to the Malays and Indians.
After independence, the Malaysian Government realised the importance of
entrepreneurship to individuals, society and the country, and how it contributes
to the nationÊs prosperity. Since then, the government has been focusing on the
field of entrepreneurship until today. The New Economic Policy (1971a1990), the
National Development Policy (1990a2000) and Vision 2020, all encourage and
support entrepreneurship development in Malaysia.
The government encourages entrepreneurship development and gives
recognition to entrepreneurs because they can contribute to the development
of the country. In 1995, the government incorporated the Ministry of
Entrepreneurship Development as a specific body to manage and promote the
growth of entrepreneurship in Malaysia. Today, this ministry is named the
Ministry of Entrepreneurship Development and Co-operation.
1.5
How far does the Malaysian government recognise and also
restructure entrepreneurship development in the country? Do
research on this topic and share your findings. You may use the
Internet, newspapers and books as resources for your research.

ACTIVITY 1.5
Name some policies enacted by the Malaysian government to
promote local entrepreneurship.

ACTIVITY 1.4

• The study of entrepreneurship has relevance today, not only because it helps
entrepreneurs to better fulfil their personal needs but also because of the
contribution it gives to the individual, society, country and to the world.
• This topic examines the evolution and concepts of entrepreneurship and
discusses the importance of entrepreneurship.
• In addition, the ten major myths of entrepreneurship are presented to
provide a better understanding of the assumptions surrounding this newly
developing field of study.
• It also provides a framework and foundation for researching contemporary
theories and processes of entrepreneurship.
• The discussion on the entrepreneurship development in Malaysia is
presented to give a brief history and scenarios of entrepreneurship in
Malaysia. The government should continuously promote the growth of this
area in the future.
• Furthermore, to foster entrepreneurship development, entrepreneurship
education is a vital element to further educate society in the area of
entrepreneurship.

Divide and rule

Entrepreneur

Entrepreneurship

Myths

New venture

Risk

1. What are the ten myths of entrepreneurship?
2. Discuss the importance of entrepreneurship.
3. Give the scenarios of entrepreneurship development in Malaysia.

13 T3 Developing Entrepreneurial Creativity and Innovation

13 T3 Developing Entrepreneurial Creativity and Innovation

INTRODUCTION
Today's competitive business environment requires an entrepreneur to think of
ways to produce new products, services or processes for new purposes to the
customers. This, in turn, could enable the organisation to survive and attract the
attention of customers to the organisation's new inventions as well as generate
revenues. Hence, creativity and innovation are vital elements for all levels of
businesses in order for them to grow and expand. Besides, it is also essential both
for survival and for building competitive advantage (Kirby, 2003).
Continuously seeking new paradigms of solving a business problem is the
precondition for successful entrepreneurs. As a creative person, the entrepreneur
must be able to think creatively to find solutions to existing problems. One
should, however, remember that, efficiency and effectiveness no longer
guarantee the survival of business nowadays. Creativity and innovation are
constantly pushing business forward.

Topic 3 Developing Entrepreneurial Creativity and Innovation

LEARNING OUTCOMES
By the end of this topic, you should be able to:
1. Define the concepts of creativity and innovation;
2. Explain four main phases in the creative process;
3. Explain five creativity techniques;
4. Describe four basic types of innovation; and
5. Discuss the barriers to creativity and innovation.

As a result, the ability to create or invent something new is the answer for
business to remain in the market.
The first section discusses what creativity is, the process of creativity, barriers to
creativity, how to generate creativity and characteristics of creative entrepreneurs.

WHAT IS CREATIVITY?
There are a few definitions for creativity. According to Schermerhorn, Hunt
and Osborn (2003), creativity involves the development of unique and novel
responses to problems and opportunities. Creativity is imperative for responding
to the complex challenges in a dynamic business environment which is often full
of non-routine problems. Thus, creativity is:
„The ability to produce work that is novel (i.e. original and unexpected), high
in quality and appropriate (i.e. useful, meets task constraints).‰
(Sternberg, Kaufman and Pretz, 2002)

Give the definition for creativity based on your understanding.

SELF-CHECK 3.1
An entrepreneur needs to think of ideas to implement new strategies. Generally,
ideas evolve from the creative process in which an imaginative individual will
imagine, inculcate and develop an idea into a form that can be implemented and
in return, benefit both the entrepreneur and the organisation.
According to Kuratko and Hodgetts (2004), there are four main phases or steps in
the creative process, as shown in Figure 3.1.
Figure 3.1: The creative thinking process
Source: Kuratko and Hodgetts (2004)

3.2
The elaboration of the phases is shown in Figure 3.2.
Figure 3.2: Four phases in the creative process

BARRIERS TO CREATIVITY
We should bear in mind that not all novel ideas generated during the creative
thinking process are acceptable. Creativity does not ensure that there will be no
barriers, no frustrations and no failures. There are four barriers to creativity, as
shown in Figure 3.3.
Figure 3.3: Barriers to creativity

3.3
Briefly explain what creativity is and the main phases involved in the
process of creative thinking.

EXERCISE 3.1

HOW TO GENERATE CREATIVE IDEAS
Different people have different ways of thinking. There are several techniques to
improve creativity. Five techniques that can be used to foster creativity are:
C Brainstorming;
C Forced Analogy;
C DO IT;
C Mind Mapping; and
C Nominal Group.

(a) Brainstorming
Brainstorming is the most common and powerful technique used to hatch
ideas. During a brainstorming session, all members of the group suggest
ideas that are then discussed. The ideal number of group members
involved in a brainstorming session is four to seven. There are four rules of
brainstorming (Williams, 2000), namely:
(i) The more ideas, the better;
(ii) All ideas are acceptable, no matter how wild or crazy they might be;
(ii) Use other group member's ideas to come up with even more ideas;
and
(iv) Criticism or evaluation of ideas is not allowed.

(b) Forced Analogy
 This is a very useful and fun-filled technique of generating ideas. An idea is
compared to a problem and something else that has little or nothing in
common to get a new insight. There are several ways that you can 'force' a
relationship between almost everything and gain new solutions, such as
you and a pen, music and computers, products and markets. Forcing
relationships can help to develop new insights as well as new alternatives.
To develop a relationship is to have a selection of objects or a card with
pictures or images that help to generate ideas. Choose an object or card
randomly and see what kind of relationship can be forced.
(Adapted from members.optus.net.com/au/~charles57/Creative/Techniques/
forced_analogy.htm or www.si.hhs.nl/~runda/Creativity.pdf)

3.4
(c) DO IT
At the first stage of the DO IT technique, we must analyse the problem
to ensure that the correct question is being asked. Studying and
understanding the problem is crucial in order to identify the main cause of
the problem. If the problem appears to be very large, break it into smaller
parts and summarise the problem as concisely as possible.
Secondly, once we have successfully identified a problem, generate as
many ideas as possible to get possible solutions to overcome it. Every
attempt to generate an idea is essential, regardless of whether the ideas are
good or bad.
Thirdly, we need to examine and analyse in detail before choosing the best
ideas to solve a problem, and all the solutions should come from the second
stage.
Finally, once the best solution is identified, it is time to implement it. This
stage involves the development of a reliable product from the ideal,
marketing and business strategies and it normally incurs time, cost, and
energy.

(d) Mind Mapping
This technique allows one to use pictures and/or word phrases to organise
and develop thoughts in a non-linear fashion. It helps people to „see‰ a
problem and its solution.
Many people use mind mapping during:
(i) Brainstorming;
(ii) Taking notes; and
(iii) Refreshing their memory.

Mind mapping can also be used to generate new products, solve a problem,
plan strategy, or develop a process. The key to its effective use to generate
ideas and solve problems is to not necessarily think logically. If one idea
triggers another, do not try to analyse it; just mark it down on the mind
map. Similar to brainstorming, the crazier the association, the better. That is
how truly innovative solutions come about.

(e) Nominal Group
The use of nominal groups is to generate ideas and evaluate solutions faceto-face
in non-threatening group circumstances; members do so by writing
down silently as many ideas as possible. After that, group members engage
in recording the ideas given and then discuss the ideas to obtain
clarification and evaluation. Finally, each member will vote privately on the
priority of ideas.

CHARACTERISTICS OF CREATIVE INDIVIDUALS
Entrepreneurs are somehow creative individuals. However, not all creative
individuals can be entrepreneurs. Figure 3.4 shows the eight characteristics of
creative individuals.
3.5

EXERCISE 3.2
List and briefly explain the techniques for generating creative ideas.

Figure 3.4: Characteristics of creative individuals

WHAT IS INNOVATION?
Once entrepreneurs have undergone a creative process and found the best
solution, the next step will be application and eventually innovation. Creativity is
a pre-condition to innovation. Today, innovation is widely believed to be the key
to sustainable success for many organisations. Companies that are able to
compete and win are those that develop new products or new systems of
producing products and continue doing so over time.

Why is innovation imperative? What is innovation? In this section, we will
discuss what innovation is, its types, sources and barriers.

According to Kinicki and Williams (2003), innovation is „finding ways to deliver
new or better goods or services‰. It means that every organisation, regardless of
profit or non-profit, will not allow itself to become complacent, especially when
rivals are coming up with creative ideas. Innovation is also deemed as the
creation of something new in the marketplace that alters the supply-demand
equation (Chell, 2001). An entrepreneur creates a new demand in the market by
recombining the factors of production to create something new. Therefore,
innovation is the key to survival for entrepreneurs in today's intense business
environment. 'Innovate or die' should become every entrepreneur's principle of
daily life.

3.6.1 Types of Innovation
Everyone in an enterprise must be innovative so as to enable the enterprise to
change fast enough to cater to the customer's needs and demands. Essentially,
there are four basic types of innovation (Kuratko and Hodgetts, 2004) as shown
in Figure 3.5.

3.6
What do you understand by the term innovation? In your opinion,
how does this term apply to entrepreneurs and why is it important?
Discuss in your class.

ACTIVITY 3.1

Figure 3.5: Types of innovation and examples

3.6.2 Sources of Innovation
An entrepreneur needs powerful ideas before he or she can inspire a new
product, service or process. The following are four sources of innovation for
entrepreneurs (Drucker, 1985; Kuratko and Hodgetts, 2004).

(a) Unexpected Events
Entrepreneurs frequently notice that they get ideas from something that is
out of their expectations. Unexpected events offer immense opportunities
for entrepreneurs to apply their expertise to a new application or formula.
Besides that, unexpected success or failure is also a major source of
innovation when things go unnoticed or unplanned.

(b) New-Knowledge Concept
In today's marketplace, we can find out new products or services easily.
Indeed, most of these products or services are knowledge-based
innovations that need a long time to research and to be developed by
experts. New knowledge can be obtained through reading, attending
seminars or conferences or discussions among the professionals.

(c) Changes of Demographics
Changes of demographic characteristics in age, educational levels, income
and types of employment have been a main source of innovation for
entrepreneurs. The transformation of demographic characteristics has
created huge opportunities for entrepreneurs to explore. For example, as
the standard of living and income increase, the demands for luxury goods
and health care products also accelerate.

(d) Process Needs
Process needs exist within the process of business, an industry or a service.
It perfects a process which already exists, replaces a link that is weak,
redesigns an existing process and so on. All these provide opportunities for
entrepreneurs to produce products, services or processes that suit the
customer's demands and needs. For example, in the process of creating a
healthy society, people will want to do more exercise. Thus, entrepreneurs
could provide more health facilities or centres for those who desire them.

1. What are the sources of innovation? Give examples based on your
surrounding observation.
2. Based on the types of innovation, give appropriate examples and
explain. Compare it with your friend's examples.

SELF-CHECK 3.2

3.6.3 Barriers to Innovation
Even though entrepreneurs have a pool of ideas to innovate, there are some
glitches that can hinder one from becoming innovative. Barriers to innovation
always come from within an organisation, especially from its staff. The barriers
to innovation are as follows:

(a) Organisation Does Not Encourage Innovation

Some organisations are comfortable with the current status quo and refuse
to change. For them, any change means a threat that could affect the
organisational culture and procedures, and more importantly their current
position. Thus, to avoid such things from happening, the management will
try to avoid or refuse to recognise the need for innovation within the
organisation. Moreover, interdepartmental borders prevent communication
of innovative ideas among its staff.

(b) Insufficient Resources
Some organisations are keen to change and innovate but are let down by
insufficient resources like human resources, funds and facilities that are
vital in implementing an innovation.

(c) Traditional Management Behaviour
Management's desire to be in control prevents its staff from being creative.
This happens especially when the management is controlled by senior staff
members that maintain traditional ways of thinking and resist changing.
Sometimes, a creative staff member is hindered by the management's
excessive rules, constraints and bureaucracy.

In addition to all those, barriers to innovation could be derived from personal or
individual behaviour as shown in Figure 3.6.
Figure 3.6: Personal or individual behaviour

THE IMPORTANCE OF CREATIVITY AND
INNOVATION FOR ENTREPRENEURS

In the dynamic world of global competition, entrepreneurs must embrace
creativity and innovation as part of their crucial ingredient for success.
Entrepreneurs must be able to create new products or services and be willing to
adopt cutting-edge technology if they are to compete successfully. Thus, it is
essential for entrepreneurs to recognise and reward themselves and their staff
who are creative and innovative. There are three reasons why creativity and
innovation is important. They are explained as follows:

(a) To Ensure an Organisation's Survival
Creativity and innovation is essential to long term organisation survival.
The future of a business depends on the ability of the organisation to create
new products or services. In doing so, it can increase the organisation's
capability to compete with its rivals. It also makes the entire organisation
respond speedily and collectively to the environmental change. An organisation can no longer wait for demands from customers; rather, it must engage in continuing supply of something novel to satisfy customer's wants.

3.7

(b) To Explore New Markets
With the presence of new products or services, entrepreneurs have the
advantage of exploring untapped markets. A creative and innovative
entrepreneur will always think of conquering a new market by introducing
new products or services. For example, when Phillips introduced the first
DVD (Digital Video Disc) player in the market in 1995, it successfully
penetrated the worldwide market.

(c) To Exploit Natural Resources
There are plenty of natural resources on Earth. Thus, entrepreneurs should
ensure that they can get these benefits by exploiting the wealth of resources
without causing harm to the environment. Indeed, creativity and
innovation create resources. There is no such thing as a 'resource' until man
(entrepreneur) finds a use for something in nature and thus endows it with
economic value (Drucker, 1985). Therefore, an entrepreneur is a person who
is responsible for creating the 'value' for every natural resource to benefit
human beings.

STRATEGIES TO ENCOURAGE CREATIVITY AND INNOVATION

There are four strategies that can be used to encourage creativity and innovation
in an organisation. These strategies are summarised in Figure 3.7.

Figure 3.7: Four strategies to encourage creativity and innovation in the organisation
3.8

(a) Recognise your Own Abilities
It is important to know your abilities so that you can tackle the problems or
opportunities which arise creatively and innovatively. Be aware of your
own limitations that might block you from possible solutions.

(b) Change your Perception
Try to look at problems or opportunities from various perspectives.
Examine the problems and opportunities by breaking them into small
pieces, then find the real or best solutions for them.

(c) Change the Organisational Culture
Organisations must encourage their staff to be creative and innovative.
Reward the members of staff who really excel in creating novelties.

(d) Dare to Fail
Treat every failure or mistake as a motivator that drives you to go further in
finding the best solution.

• The definition of the concept of creativity is „the ability to produce work that
is novel (original and unexpected), high in quality and appropriate (useful,
meets task constraints)‰.
• The definition of the concept of innovation is „finding ways to deliver new or
better goods or services‰.
1. What are the strategies that you can use to encourage creativity and
innovation in an organisation?
2. To take some creativity tests, please browse the following websites:
• http://www.creax.com/csa/frame.asp?session=zero
• http://enchantedmind.com/html/creativity/iq_tests/creativity_test.html

ACTIVITY 3.2

• The four main phases in the creative phase are:
a Knowledge accumulation
a Incubation
a Ideas
a Evaluation and implementation
• The five creativity techniques are:
a Brainstorming
a Forced analogy
a DO IT
a Mind mapping
a Nominal group
• The four basic types of innovation are:
a Invention
a Extension
a Duplication
a Synthesis
• The barriers to creativity are:
a Personal belief
a Fear of criticism
a Over-management
a Stress
• The barriers to innovation are:
a Organisations which do not encourage innovation
a Insufficient resources
a Traditional management behaviour

Brainstorming
Creativity
Creative process
DO IT
Forced analogy
Innovation
Mind-mapping
Nominal group

13 Topic 5 Business Plan

13 Topic 5 Business Plan

INTRODUCTION
Business environments today are dynamic, complex and subject to continual
change. In order to gain and retain sustainable competitive advantage, achieve
stated objectives and a range of efficiencies, an entrepreneur must have a good
business plan. Business planning is one of the management tools used to achieve
business objectives.
Therefore, a company should prepare a convincing business plan to attract
investors. Investors are more prepared to invest in a business when they believe
that the business planning is realistic and profitable based on their forecast of
the business viability. When a business plan is prepared based on correct
information, investors will have confidence in the market, product or service of
the company. The accuracy of a business plan will reflect the management's
ability, experience and history in running the business.

Topic 5 Business Plan

LEARNING OUTCOMES
By the end of this topic, you should be able to:
1. Explain what a business plan is;
2. Explain the importance of business plans;
3. Identify the parties who need business plans;
4. Explain eight essential elements of a good business plan;
5. Discuss six guidelines for preparing a business plan; and
6. Describe five factors that contribute to the failure of business plans.

WHAT IS A BUSINESS PLAN?
A business plan is a written document, which describes in detail the overall plans
of a business in which an entrepreneur aims to get involved. Even if the
entrepreneur has been in business for a number of years, committing plan to
paper allows the entrepreneur to re-examine his business as well as to consider
new business opportunities. Therefore, a business plan is the blueprint of a
company, presented in a standard business format that is logical and realistic. A
business plan must communicate ideas and goals clearly. To accomplish this, a
plan should include three things as shown in Figure 5.1:

Figure 5.1: Three main things that an entrepreneur should include in a business plan

According to Patricia Utton (2001), a business plan is a detailed programme or
roadmap outlining every conceivable aspect of an entrepreneur's proposed
business venture. It is a comprehensive, self-explanatory plan of what the
entrepreneur intends to do; how the entrepreneur intends to do it, when the
entrepreneur intends to do it; where the entrepreneur intends to do it and why
he believes his idea is viable and profitable. It is, in essence, a structured
guideline to achieve the entrepreneur's goals, in operating the business.
Besides that, a business plan is an ideal tool to check facts and to
comprehensively examine the practicality of an idea before putting it into action.
It gives the entrepreneur opportunities for realistic expectations and action when
taking the business into operation. On the other hand, it also helps the
entrepreneur to identify areas of strength and weakness, and the details for the
entrepreneur to look over, the opportunity to be gained and the threat to be
faced. All these aspects will determine how they can best achieve their business
goals.

Generally, an entrepreneur needs to prepare a workable business plan for the
following purposes:

(a) It forces entrepreneurs to arrange their thoughts in a logical and
structured order.
(b) It helps them to create business frameworks by defining the activities,
responsibilities and objectives to be achieved.
(c) It encourages entrepreneurs to stimulate reality and anticipate pitfalls
before they actually occur.
(d) It helps entrepreneurs to develop strategies to meet those objectives.
(e) It serves as a working action plan or guideline in operating their business.
(f) It enables them to identify constraints that they may face when running the
business.

IMPORTANCE OF BUSINESS PLANNING
A business plan is very important to an entrepreneur for various reasons
(refer Figure 5.2).
Figure 5.2: The importance of a business plan

(a) Increase Opportunities for Success
Comprehensive business planning can identify the level of performance
that is supposed to be achieved in business. A business plan will determine
the changes that need to be taken to ensure its success. Such changes
that need to be taken into consideration are organisational structure, introduction of new technology, new manufacturing techniques and
new programmes for subordinates to increase their commitment and
productivity. Entrepreneurs need to update their knowledge and skills, to
increase their opportunity for success.

(b) Develop Mission and Vision
A business plan can set a clear mission and vision for a business. It enables
the entrepreneur to make the right decisions and take appropriate actions
in the future. The mission and vision will act as a lighthouse to enable
the entrepreneurs to know exactly where they are moving towards. The
entrepreneurs should communicate mission and vision to the entire
stakeholder to gain confidence from them.

(c) Identify the Main Competitor(s)
Business planning will enable entrepreneurs to determine who their main
competitors are, their strengths and weaknesses and determine the right
strategy to face them. All these can be done by competitive analysis to
identify the competitor's product line or service as well as their market
segment. The entrepreneur should be sure to identify all key competitors
for each of the products or services and try to estimate how long it will take
before new competitors enter the market place.

(d) Identify the Right Way of Managing the Business
A business plan gives room for the entrepreneurs and their employees to
develop effective strategy to run the business. They can define who, when
and how to tender their knowledge, skills and abilities in implementing the
business. The entrepreneurs should also ensure that their products and
services are in line with the customer's taste, government policies and other
changes in the business environment.

(e) Increase the Stakeholder's Confidence
Every stakeholder who has an interest in a business will be eager to know
the company's strengths like finances, resources and company viability.
This information is necessary for the stakeholder to determine his return on
investment. For example, before a financial institution agrees to provide the
loan needed by the entrepreneur either to start or to expand his business,
they would want to know the prospects of the business, and the ability to
repay the loan. On the other hand, suppliers also want to know the strength
of the entrepreneur's financial position before they prepare to give credit
for their materials. Also, government agencies would want to know the
background and the nature of the business before they allow the company
to operate.

(f) Identify Barriers to Business
When implementing a business, an entrepreneur will definitely face many
barriers. These barriers will cause failure or slow down the entrepreneur's
progress if it is not properly managed. Therefore, the entrepreneur should
identify the barriers he may face before implementing the business and take
the necessary action to face it. The entrepreneur knows how far those
barriers will affect him and his business.

(g) As a Performance Tool
A business plan is an operating tool which, if properly prepared, will help
the entrepreneur to work effectively towards its success. The business plan
will allow the entrepreneur to set a realistic target to be achieved as a
performance yardstick. Therefore, the business plan will provide the basics
for evaluating and controlling the company's performance in the future, in
terms of profit, cost and quality. It is also used to achieve performance
targets, to analyse customer's behaviour trends, competitor's strengths, and
internal and external economic performances.

WHO NEEDS THE BUSINESS PLAN?
A business plan is very important to various parties. Among those who need
business plans are:

(a) The Management Team
A business plan will enable the management team to consider the time,
effort and support needed to achieve the company's goal. It will provide
them with opportunities to analyse critical situations that will hinder
business progress. Besides, it will enable them to forecast changes that
might happen in the future. The management team must also analyse the
reason for the success and the failure of the company as well as threats and
opportunities that would be faced in the future. Therefore, the team must
build and examine the strategies and priorities that should be clearly
described and communicated to ensure company growth. The management
team is responsible for setting a reasonable benchmark as a comparison
for the company's success. Besides that, a business plan will enable the
management team to identify difficulties and constraints faced by the
employees in achieving the target.
5.3

Why are business plans important for entrepreneurs?
EXERCISE 5.1

(b) The Shareholders
Business planning is also important to shareholders. They must know how
the business is to be conducted since their approval is necessary if changes
in target and strategy are to be made. So, they need to know about any new
decisions made before executing them. A business plan is an essential
document for shareholders because it plays a vital role in critically
reviewing the draft plan. The entrepreneur should inform them about the
future market of the products or services, business operations, financial
projections and future plans, such as expanding the business to
international markets. The business plan is also important for new ventures
or new businesses in order to secure potential new shareholders.

(c) Bankers or Creditors

Before approving a loan application, bankers will need to study the
entrepreneur's business plan. This plan will give them an indication of the
returns they may expect from their loan and also enable them to gauge the
viability of the venture and its profitability within a reasonable time frame.
The business plan will also give bankers an idea of the companyÊs strategies
and priorities. These must be clearly described in the plan and consistent
with the overall departmental strategy policy, functional objectives and
reporting requirement. From the business plan, bankers will also be able to
ascertain government grants and tax incentives available to the
entrepreneur.

(d) Customers
Customers will also be interested in the business plan for information
regarding the company which will influence their decision to use its
products or services. Issues of interest include the quality and safety of the
company's product. To gain customer's confidence, the business plan
should also include the price of the product, durability, features and
additional support or after sales services. Customers will have more
confidence if the product uses new technologies, is authorised by parties
such as SIRIM and JAKIM, and is in line with their culture.

(e) Suppliers
Suppliers need a business plan when considering approval for business
procurement on credit terms. Suppliers want to see the ability of a business
to pay back the credit on time. Thus, a good business plan is able to give a
clear picture on the capability of the business.

(f) The Employees
Most potential employees want information about business developments
and performance before they decide to join an organisation. They can get
this information from the business plan.

ESSENTIAL ELEMENTS OF A GOOD BUSINESS PLAN.

Every successful business plan should include something about each of the
following areas since these are what make up the essential elements of a good
business plan (refer to Figure 5.3).

Figure 5.3: The eight essential elements of a good business plan

(a) Executive Summary
The executive summary is the most important section of a business plan.
This is the first section that needs to be looked at and it should tell readers
where the company is and where it wants to go. Among the elements
included in the executive summary are the mission statement, the date
when the business started, the name of the founders and the roles they
play, the number of employees, location of the business and their branches
or subsidiaries (if any), description of plans or facilities, products
manufactured, banker's names, the progress of the company and its
growth, financial status and a summary of the management's future plans.

(b) Market Analysis
The market analysis section illustrates the entrepreneur's knowledge about
a particular industry which the business is in. It should also present a
general overview and conclusion of any marketing research data that has
been collected. However, specific details of marketing research studies
should be moved to the appendix section of the business plan. This
section should include an industry description and outlook, target
market information, market test result, lead times and an evaluation of
competition.

(c) Marketing and Sales Strategies
Marketing is the process of creating and attracting customers to the
business. The entrepreneur should realise that customers are the lifeblood
of a business. A business plan should include a sales forecast based on
market analysis. In this section, the most important thing to do is to define
the marketing strategy. Marketing strategy should be a part of an ongoing
self-evaluation process and unique to the company. An overall marketing
strategy would include strategies for market penetration, business growth,
channels of distribution and communication. Overall sales strategy should
include sales force strategies and sales activities. It is also important to
include the marketing budget in this section.

(d) Services or Product Line
This section describes the uniqueness of the company's services or products
and the benefits to potential and current customers. The entrepreneur
should focus on the areas where a distinct advantage exists by identifying
the problem for which the service or product provides a solution.

(e) Organisation and Management
This section includes company's organisational structure, details about
the ownership of the company, a profile of management teams and the
qualifications of members of the board of directors, the remuneration plan
and the administrative budget.

(f) Funding Request
This section focuses on the amount of funding needed to start or expand the
business. If necessary, it can include different funding scenarios such as
with and without funding and its implication to the business. Therefore,
this section consists of project implementation cost, which includes capital
expenditure, operational expenditure, sources of finance or funding. It also
includes funding requirements, future funding requirements over the next
five years, how they will utilise the funds received and any long term
financial strategies that would have an impact on the company's financial
progress.

(g) Financials
Financials should be developed after analysing the market and setting clear
objectives. In this section, the entrepreneur shows clearly the financial
projections such as cash flow pro forma, profit and loss pro forma, balance
sheets projections, etc.

(h) Appendix
The appendix section should be provided to readers on an as-needed basis.
In other words, it should not be included with the main body of business
plan. The business plan is a communication tool. As such, it will be seen by
many people. The appendix includes a credit history, resume of key
managers, product pictures, letters of reference, details of market studies,
relevant magazine articles, licenses, permits, legal documents, copies of
leases, building permits, contracts and list of business consultants,
including attorneys and accountants.

You are an entrepreneur who is running a bakery selling traditional
cakes in Ampang Plaza. What are the details you will include under
the Marketing and Sales Strategy in your business plan? Discuss in a
group and write the details.

ACTIVITY 5.1
What are the important elements in a good business plan?

GUIDELINES IN PREPARING BUSINESS PLANS

Figure 5.4 shows the six guidelines to be followed in order to produce an
effective business plan.
Figure 5.4: The guidelines in preparing a business plan

According to Kuratko (2004), there are a number of pitfalls that should be avoided
by entrepreneurs in the formulation of a business plan. Some of these are common
errors that are usually committed by entrepreneurs and are easily noticed. Table 5.1
shows five pitfalls and strategic steps to be taken to avoid them.

Table 5.1: Pitfalls in Planning
No Pitfalls Facts How to Avoid

1. No realistic goals.

• Some of the business plans do not contain attainable and clear goals that entrepreneurs are trying to achieve.
• Lack of time frame.
• No priorities.
• No action steps in the business plan.

Good business plan should
include a clear schedule with
specific steps of action to be
accomplished within specific
time frame.

2. Failure to anticipate obstacles.

Sometimes, entrepreneurs are so immersed
in their ideas that they are unable to see the
possible problems that may arise. There are
no indicators to recognise the problems, no
admission of possible mistakes or
weaknesses in the plan and contingency
plans do not exist.

To avoid this pitfall, list
down possible obstacles that
may arise and steps or
contingency plans if the
problems occur.

3. No commitment or dedication

Many entrepreneurs appear to lack
commitment to their business.
Entrepreneurs should not give the
impression that they don't take matters
seriously in doing business. The obvious
indicators for lack of commitment are:

• Excessive procrastination.
• Missed appointments.
• No desire to invest personal money.
• Desire to make a quick profit.
Entrepreneurs should follow
up important appointments
and be willing to
demonstrate financial
commitment to their
business.

4. Lack of business or technical experience.

Many investors look for the entrepreneurs
with actual experience and not merely with
ideas, and who have true knowledge in the
proposed business. Thus, entrepreneurs
should demonstrate their knowledge and
background experience in their business
areas.

They should give evidence of
personal experience and
background for this venture.

If they lack specific
knowledge or skills, they
should get assistance from
those with qualifications.

5. No market niche

Many entrepreneurs do not identify
potential customers for their products.
Many new potential products never reach
the hand of the customer because of the
lack of a market niche or no market was
ever established for that product.

The best way to avoid this
pitfall is to establish a
specifically targeted market
segment and demonstrate
why and how specific
product or service will meet
that target group.

Entrepreneurs should avoid the pitfalls discussed in order to better the chances
of their business plan to succeed. These critical areas must be handled carefully
before developing their business plan. This will help the entrepreneur to
establish a solid foundation on which to develop an effective business plan.
• Business planning is a management system. It integrates the management
functions of planning, organising, implementing and controlling.
• The business planning process provides management with basic tools and
information that describe the management and resource environment, and
contribute to establishing the accountability framework needed to manage in
a dynamic environment. So, the execution of business planning is very
important to ensure the survival and expansion of the business.

Business plan
Executive summary
Management function
Market analysis
Product line
Pitfalls
Shareholders
Stakeholders
Describe the factors which contribute to the failure of business plans.