understand and simple to compute.

They can also be used to compare

different companies in different industries. Since a ratio is simply a
mathematical comparison based on proportions, big and small
companies can use ratios to compare their financial information. In a
ENTREPRENEURSHIP sense, financial ratios don’t take into consideration the size of a
company or the industry. Ratios are just a raw Computation of
financial position and performance.
Ratios allow us to compare companies across industries, big
VIRGINIA CENTURIONE BRACELLI SCHOOL and small, to identify their strengths and weaknesses. Financial ratios
Daughters of our lady on Mount Calvary are often divided up into seven main categories: liquidity, solvency,
Poctoy, Odiongan, Romblon efficiency, profitability, market prospect, investment leverage, and
SY 2021-2022 coverage.
Ratios use simple calculations based upon the interactions in
QUARTER 2 MODULE 3 sets of data.For example, changes in costs of sale are directly linked to
changes in sales activity. Changes in sales activity also have an effect
MANAGING THE FINANCE FUNCTION ( CONTINUATION) upon wages and salaries, receivables, inventory levels, etc. Ratios
allow us to see those interactions in a simple, concise format.
Statement of Cash Flows Ratios are of limited use on their own, thus, the following
Even if the company is turning profit, it may be falling short points should serve as useful checklist if there is a need to analyze data
because of inadequate cash flow, so it is just as important to prepare a and comment on it:
statement of cash flow as it is to prepare the income statement and
balance sheet. This statement compares two time periods of financial
data and shows how cash has changed in the revenue expense, asset,
liability and equity accounts during these time periods.

The statement of cash flows must be prepared last because

it takes information for all three previously prepared financial
statements ( Income statement, Statement of Retained Earnings and
Statement of Financial Position). The statement divides the cash flows
into operating cash flows, investment cash flows, and financing cash
flows. The final result is the net change in cash flows for a particular
time period and gives the owner a very comprehensive picture of the
cash position of the firm.

The statement of cash flows shows the firm's financial

position on a cash basis rather than an accrual basis. The cash basis
provides a record of revenue received, from the firm 's customers in
most cases. The accrual basis shows and of the revenue when it was
earned. If a firm has extended billing terms, such as 30 days net, 60
Profit Margin Ratio
days 1 percent, these two methods can produce substantially different
Here are some of the key ratios that investors and creditors
results.
consider when judging how profitable a company is:
Interpretation of Financial Statements
The profit margin ratio, also called the return of sales or
It is important that users of financial statements can
gross profit is a profitability ratio that measures the amount of net
interpret the financial statements to be able to draw valid conclusions.
income earned with each peso of sales generated by comparing the
Typically, this involves the use of comparisons to prior years, forecasts
net income and net sales of a company. In other words, the profit
and competitors. Users can compare sales and expense figures, asset
margin ratio shows what percentage of sales are left over after all
and liability balances and cash flows to perform this analysis.
expenses are paid by the business.
Ratio analysis is widely used to support this process of
Creditors and investors use this ratio to measure how
comparison. The ratios are calculated using the figures already present
effectively a company can convert sales into net income. Investors
in the financial statements. The raw data is equally useful when
want to make sure profits are high enough to distribute dividends
performing analysis. Ratios are simply a tool to try and assist
while creditors want to make sure the company has enough profits to
understanding and comparison.
pay back its loans. In other words, outside users want to know that the
company is running efficiently. An extremely low profit margin formula
Users of Financial Statements
would indicate expenses are too high and the management needs to
When interpreting financial statements, it is important to ascertain
budget and cut expenses.
who the users of accounts are and what information they need:
The return on sales ratio is often used by internal
management to set performance goals for the future.
1. Shareholders and potential investors primarily concerned with
receiving an adequate return on their investment, but also with the
Formula
stability/liquidity of the business.
The profit margin ratio formula can be calculated by dividing
2. Suppliers and lenders-concerned with the security of their debt or
net income by net sales
loan
3. Management- concerned with the trend and level of profits, since
Profit Margin Ratio = Net Income
this is the main measure of their success.
Net Sales
Net sales is calculated by subtracting any returns or refunds
Other potential users include:
from gross sales. Net income equals total revenues minus total
1. financial institutions,
expenses and is usually the last number reported on the income
2. employees,
statement.
3. professional advisors to investors, and
4. financial journalists and commentators
Analysis
The profit margin ratio directly measures what percentage of
Ratio Analysis
sales is made up of net income. In other words, it measures how much
Financial ratios are mathematical comparisons of financial
profit is produced at a certain level of sales.
statement accounts or categories. These relationships between the
This ratio also indirectly measures how well a company
financial statement accounts help investors, creditors, and internal
manages its expenses relative to its net sales. That is why companies
company management understand how well a business is performing
strive to achieve higher ratios. They can do this by either generating
and which areas need of improvement.
more revenues while keeping expenses constant or keep revenues
Financial ratios are the most common and widespread tools
constant and lower expenses.
used to analyze business' financial standing. Ratios are easy to
 Liquidity ratios analyze the ability of a company to pay off management to help improve the company as well as outside investors
both its current liabilities as they become due as well as their long- and creditors looking at the operations of profitability of the company.
term liabilities as they become current. In other words, these ratios Efficiency ratios go hand with profitability ratios. Most often
show the cash levels of a company and the ability to turn other assets when companies are efficient with their resources, they become
into cash to pay off liabilities and other current obligations. profitable. SM Hypermarket is a good example. SM Hypermarket is
Liquidity is not only a measure of how much cash a business extremely good at selling low margin products at high volumes . In
has. It is also a measure of how easy it will be for the company to raise other words, they are efficient at turning their assets. Even though
enough cash or convert assets into cash. Assets like accounts they don’t make profit per sale, they make a ton of sales. Each little
receivable, trading securities, and inventory are relatively easy for sale adds up.
many companies to convert into cash in the short term. Inus, all of
these assets go into the liquidity calculation of a company. Accounts Receivable Turnover Ratio
Accounts receivable turnover is an efficiency ratio or activity
Here are the most common liquidity ratios: ratio that measures how many times a business can turn its accounts
Current Ratio receivable into cash during a period. In other words, the accounts
The current ratio is a liquidity and efficiency ratio that measures a receivable turnover ratio measures how many times a business can
firm's collect its average accounts receivable during the year.
ability to pay off its short-term liabilities with its current assets. The A turn refers to each time a company collects its average
current ratio is an important measure of liquidity because short-term receivables. If a company had P20,000 of average receivables during
liabilities are due within the next year. the year and collected 40,000 of receivables during the year, the
This means that a company has a limited amount of time in company would have turned its accounts receivables twice because it
order to raise the funds to pay for these liabilities. Current assets like collected twice the amount of average receivables.
cash, cash equivalents, and marketable securities can easily be This ratio shows how efficient a company is at collecting its
converted into cash in the short term. This means that companies with credit sales from customers. Some companies collect their receivables
larger amounts of current assets will more easily be able to pay off from customers in 90 days while others take up to 6 months to collect
current liabilities when they become due without having to sell off from customers.
long-term, revenue generating assets. In some ways the receivables turnover ratio can be viewed as
a liquidity ratio as well. Companies are more liquid the faster they can
Formula convert their receivables into cash.
The current ratio is calculated by dividing current assets by
current liabilities. This ratio is stated in numeric format rather than in Formula
decimal format. Here is the calculation: Accounts receivable turnover is calculated by dividing net
credit sales by the average accounts receivable for that period.
Current Ratio = Current Assets
Current Liabilities Accounts Receivable Turnover Ratio= Net Credit Sales
Generally Accepted Accounting Principles (GAAP) requires Average Accounts Receivable
that companies separate current and long-term assets and liabilities
are on the balance sheet. This split allows investors and creditors to The reason net credit sales are used instead of net sales is
calculate important ratios like the current ratio. that cash sales create receivables. Only credit sales establish a
receivable, so the cash sales are left out of the calculation. Net sales
Analysis simply refers to sales minus returns and refunded sale.
The current ratio helps investors and creditors understand The net credit sales can usually be found in the company's
the liquidly of a company and how easily that company will be able to income statement tor the year although not all companies report cash
pay off its current liabilities. The ratio expresses a firm's current debt in and credit sales separately. Average receivables Is calculated by adding
terms of current assets. So a current ratio of 4 would mean that the the beginning and ending receivables for the year divided are by two.
company has 4 times more current assets than current liabilities. In a sense, this is a rough calculation of the average receivables for the
A higher current ratio is always more favorable than a lower year.
current ratio because it shows that the company can make current
debt payments more easily. Analysis
If the company has to sell fixed assets to pay for its current Since the receivables turnover ratio measures a business'
liabilities, this usually means that the company isn't making enough ability to efficiently collect its receivables, it only makes sense that a
from operations to support activities. In other words, the company is higher ratio would be more favorable. Higher ratios mean that
losing money. Sometimes this is the result of poor collections of companies are collecting their receivables more frequently throughout
accounts receivable. the year. A ratio of 2 would mean that the company collected its
The current ratio also sheds light on the overall debt burden average receivables twice during the year. In other words, this
of the company. It a company is weighted down with a Current debt, company is collecting money from customers every six months.
its cash flow will suffer. Higher efficiency is favorable from a cash flow standpoint as
well. If a company can collect cash from customers sooner, it will be
Example: able to use that cash to pay bills and other obligations sooner.
Charlie's Skate Shop sells ice-skating equipment to local hockey teams. Accounts receivable turnover is also an indication of the
Charlie is applying for loans to help fund his dream of building an quality of credit sales and receivables. A company with a higher ratio
indoor skate rink. Charlie’s bank asks for his balance sheet so they can shows that credit sales are more likely to be collected than a company
analysis his current debt levels. According to Charlie's balance sheet he with a lower ratio. Since accounts receivable are often posted as
reported P100,000 of current liabilities and only P25,000 of current collateral for loans, quality of receivables is important.
assets. Charlie's current ratio would be calculated like this:
Example
Current Ratio= P25,000.00 = .25
P100,000.00 Boy's Bicycle Shop is a retail store that sells bicycle parts. Boy
offers accounts to all of the store main customers. At the end of the
Charlie has barely enough current assets to pay off 25 percent of his year, Boy's balance sheet shows P20,000 in accounts receivable,
current liabilities. This shows that Charlie is highly leveraged and highly P75,000 of gross credit sales, and P25,000 of returns. Last year's
risky. Banks would prefer a current ratio of at least 1 or 2, so that all balance sheet showed P10,000 of accounts receivable.
the current liabilities would be covered by the current assets. Since
Charlie's ratio is so low, it is unlikely that he will get approved for his The first thing we need to do in order to calculate Bill's
loan. turnover is to calculate net credit sales and average accounts
receivable. Net credit sales equal gross credit sales minus returns
Efficiency ratios also called activity ratios measure how well (75,000 25,000 50,000). Average accounts receivable can be calculated
companies utilize their assets to generate income. Efficiency ratios by averaging beginning and ending accounts receivable balances
often look at the time it takes companies to collect cash from ((10,000 + 20,000)/ 2= 15,000).
customer or the time it takes companies to convert inventory into
cash-in other words, make sales. These ratios are used by
 While entrepreneurs need to mobilize physical and financial
resources to get their business started, it is critical for them to develop
the capabilities of their employees and build human capital if they aim
Finally Boy’s account receivable for the year can be like: for long-term growth. In this chapter, we begin by presenting two
different paradigms in managing people. We then discuss how
businesses can attract, nurture, engage, and retain employees through
the implementation of the basic human resource functions. We end by
discussing the situational leadership model, which allows
entrepreneurs to adjust their leadership style to fit their employees.

ALTERNATIVE APPROACHES TO MANAGING PEOPLE

There are two approaches that entrepreneurs can adopt in

ADDITIONAL LESSON: managing its employees. The first is the strategic human resource
BREAKEVEN ANALYSIS management (HRM) approach, which is mainstream. The second is the
integral human development (IHD) approach, which has emerged as an
alternative paradigm.
Under the strategic HRM approach, managers design the
components of the HRM system so that they are consistent with each
other and with the Organization s structure, strategies, and goals. The
goal of strategic HRM is to develop a human resource management
system that enhances an organization’s efficiency, quality, innovation,
and responsiveness to customers, which, in turn, build competitive
advantage. Under this approach, human resources are primarily seen
as instruments for achieving organizational goals. Their contributions
can be maximized through the effective implementation of the various
HR functions, including recruitment and selection, compensation and
benefits, training and development, performance evaluation, quality of
work life, and employee, and labor relations.
The integral human development (IHD) approach, on the
other hand, is anchored on the principles of human dignity and the
common good. Respecting human dignity is based on the conviction
"that each person, regardless of age, condition, or ability, is an image
of God and so is endowed with an irreducible dignity or value." That
each person "is an end in himself or herself, never merely an
instrument valued only for its utility-a who, not a what; a someone,
not a something" Common good, on the other hand, is defined by the
Second Vatican Council as "the sum total of social conditions which
allow people, either as groups or as individuals, to reach their
fulfilment more fully and more easily"
The various facets of integral human development are as
follows: bodily development, cognitive development, emotional
development, social development, aesthetic development, moral
development, and spiritual development. The manifestations of
human development at work are described in the table below.

INTEGRATION OF HUMAN DEVELOPMENT AT WORK

based on a weighted basis. Thus 45% of the company’s sales

projections can be assumed to be for Shoe A, then 45% of fixed costs
should be allocated for that product.

ACTIVITY:

If the owner of Pinoy Corporation decides that the average price per
pair can be raised to 1,200 pesos without substantially affecting the
demand for the product, what would be the new breakeven quantity?
If, however they decide that the price ought to be cut to 900 pesos to
make their shoes more affordable to their target market, how many
more pairs should they sell to break even? Show your solution.

MANAGING THE HUMAN RESOURCE FUNCTION

LEARNING DBJECTIVES

After reading this chapter, you should be able to:

1. Differentiate the strategic human resource approach and the
integral human development approach in managing employees
2. Discuss how a business can attract, nurture, engage, and retain the
talent it needs to ensure its continued growth
3. Discuss how companies can build commitment among its
employees

INTRODUCTION
 General description:
Reporting directly to the store manager, sales associates are
responsible for selling the company's products and assisting customers
with their product needs. They engage customers by asking them
questions and by providing them information about the product
features and benefits. They also handle returns of merchandise, and
help in stocking and maintenance activities.

Specific duties and responsibilities

1. Acknowledge and greet customers when they enter the store or
when they approach the area where the associate is working.
2. Engage the customer through conversation. Determine the
customer needs.
3. Provide information about the product (eg., features, values, and
benefits) when Customers seek information.
4. Know where products are located within the store.
5. Suggest additional items and services that the customer might not
have anticipated they will need.
6. Correctly handle all register transactions.
7. Handle returns or complaints graciously.
8. Treat associates, customers, and vendors courteously.
9. Ensure that the store is neat, clean, and organized throughout each
business day
10. Actively participate in all programs and procedures that drive sale.
11. Participate in store opening and store closing duties.
12. Perform related duties, as required.

Minimum qualification, training, and experience

1. Must have some high school education
2. Must have proficient communication skills in English and
The approach underlies the humanistic management Filipino.
practices of Pandayan Bookshop, a retail store that sells school 3. Must be proficient in Math.
supplies, books, and magazines, school bags, fashion accessories, 4. Must be able to work in a standard workday as set by the
personal care items, gift items, greeting cards, home décor, and arts company.
and crafts products for special occasions. The core mission of the 5. Must have a flexible schedule and be able to work evenings,
company is for its regular employees to end up with house and lot, be weekends, and holidays, if required.
able to send their children to a good school, eat nutritious food, wear 6. Previous sales experience is a plus.
decent clothing, and spend leisure time once in a while. The concern
given to them by the management is something that employees also The job description, as shown above, is important because it
exhibit toward the bookshop’s customers. There was a time, when the provides the basis for choosing among potential employees. When
bookstore clerks pooled their own money upon overhearing two conducting the job interview and when subjecting applicants to work
young siblings who did not nave enough money to pay for an item they sampling (i.e., requiring the applicant to perform small sampling of
needed. There was also a store executive who subsidized the purchase actual job activities), the entrepreneur can use the job description as
of a good quality scientific calculator for a cash-short teacher about to guide in assessing the fitness of employees for the job.
take her licensure exam. Another important human resource function that is critical in
According to its managing director Gerardo Cabochan Jr, attracting and retaining talent is the administration of compensation
there are many more stories of generosity like these in Pandayan and benefits. This function deals with every type of reward employee
Bookshop, where employees are driven by malasakit (concern for receive for performing their duties and responsibilities. These would
others) and a sincere desire to help others. It is no surprise then that include wages, salaries, bonuses, commissions, incentives, and both
there is a strong sense of community among the bookshop's financial and nonfinancial perks. An attractive compensation package
employees and customers. The bookshop, for example, has a or the promise of potential rewards is an important consideration,
community board, on which students post their greetings tor their especially among highly-qualified and skilled individuals.
teachers, and where customers write notes describing how they found Under the strategic HRM approach, instituting pay for
friendships, even romantic relationships, inside the store. performance systems or incentive systems might best serve the
purposes of an entrepreneur who prefers to recognize and reward
ATTRACTING AND RETAINING TALENT employees according to how much they have contributed to the
Attracting talent involves the human resource functions of company's success. Depending on the resources of the
recruitment and selection. Recruitment refers to activities that company and its profitability level, it can offer merit pay plans or
influence individuals to apply for a job and to accept jobs that are bonuses that are tied to employee performance. They can also offer
offered to them. Selection, on the other hand, is the process by which awards or tangible prizes (e.g., paid vacations, electronic equipment,
an organization chooses from the pool of applicants the person that or other items that might be desirable to employees). In addition, the
best fits the requirements of the job. company might want to offer incentives to teams of employees based
Entrepreneurs starting their businesses recruit people by on their overall performance.
tapping their own social network, by getting referrals, by tapping These pay-for-performance schemes, if designed and
employment agencies, by going to schools, colleges, and universities; administered carefully, can encourage employees to work harder and
and by participating in job fairs. Companies are now also recruiting more effectively, thus contributing to organizational productivity.
online by posting Job openings in their websites, by utilizing job
boards, and by tapping social media, especially through Facebook and Some companies also offer company-wide benefits. Under a
LinkedIn. profit-sharing for example, they distribute a portion of the company's
Before selecting people, the entrepreneur must be clear on earnings to their employees. Some even offer employee stock
what specific tasks and activities the new employee must perform. This ownership plans (ESOP) or options to purchase the company s stock at
can be done through a form of job analysis. After this, the a favorable price. These reward systems are ways by which new
entrepreneur must define what knowledge, skills, and experience is ventures can not only attract but also retain high-performing
are needed to perform the job well. This is known as competency employees.
profiling For entrepreneurs starting out their businesses, it would help
to translate the results of the job analysis and competency profiling NURTURING AND ENGAGING TALENT
into a brief written description of the major duties and responsibilities
that the new employee must perform. While financial rewards are important, entrepreneurs should
not underestimate the power of other aspects of employment in
Sample Job Description—JOB DESCRIPTION OF A SALES ASSOCIATE keeping valuable talent, especially those that belong to Generation Y
(millennials). Some young professionals, for example, might be willing LEARNING OBJECTIVES
to receive relatively lower compensation in exchange for flexible work After reading this chapter, you should be able to:
arrangements, which would allow them to spend time for their other 1. Identify the different growth strategies that entrepreneurial
interests off the job. They also appreciate programs that promote ventures can adopt.
health and wellness through better nutrition and regular exercise 2. Discuss the implications of. growth on a firm and on the
programs. It seems that there is some truth to what F&H Solutions entrepreneur.
Group COO Brad Federman said: "Paychecks can't buy passion”. 3. Identify the different exit strategies that entrepreneurial ventures
Moreover, many employees give value to opportunities that can adopt.
would develop their skills, which will enhance their "marketability" in
the job market. Companies can provide these through the HR function INTRODUCTION
of training and development.
Specifically, training helps employees do their current work If a new business venture is properly managed, it should
better. This would include on-the-job training, which involves a trainee follow a steady, if not rapid, growth trajectory. Once the business
working alongside more experienced employees who could teach overcomes its birth pains, the entrepreneur must continue to look for
them the tasks they need to perform; job rotation, which allows opportunities to grow his business. In this chapter, we identify the
employees to perform different jobs and which provides exposure to a different growth strategies that an entrepreneur can implement, and
variety of tasks; apprenticeships, which are frequently used in skilled cite examples of Filipino-owned enterprises that have successfully
trade or craft jobs. Training could also be done off- the-job, and could scaled up their operations. Then, we discuss both positive and negative
take the form of classroom lectures, multimedia learning and implications that growth brings to the company and the entrepreneur.
simulations. We also identify the different exit strategies that an entrepreneur can
Development, on the other hand, prepares individuals for adopt, if he chooses to transfer business ownership to another person,
future positions or responsibilities within the business. Popular sell it to another party, or if the business does not perform as expected
methods would include job rotation, Job coaching or mentoring by
seasoned managers, and assigning employees with potential to GROWTH STRATEGIES
committees or task forces to help solve particular problems within the Entrepreneurs can utilize the classic Ansoff Matrix as a guide
organization. Companies might even send employees to attend in charting the growth of their companies. The growth strategies,
seminars off-the-job, whether these are within the country or abroad. according to the Ansoft Matrix, are as follows: (a) market penetration,
Training and development efforts are best done in tandem (b) market development, (c) product development, and (d)
with diversification.
performance evaluation, which are meant to determine the extent to
which employees perform their work effectively. Managers can use MARKET PENETRATION STRATEGY
this to pinpoint employees’ areas tor development, and to help them Utilizing this strategy means selling more of the company s
achieve their potentials on the job. existing products or services to its existing customers, preferably on a
For entrepreneurs that subscribe to the IHD approach, more frequent basis, through price discounts, more aggressive
investing in training and development and quality of work life promotion and distribution efforts, or modest product improvements.
programs are excellent means of enhancing not only the cognitive Fast-food establishments located near office buildings, for example,
development of their employees. But also their physical, social, and can come up with promos (e.g., discounted combo meals) to
even emotional development. Tt 1s a reality, though, that many encourage its existing customer base of office workers to visit them
entrepreneurs see training and development and quality of the three or four times a week rather than just twice a week.
programs as expense items that can be put off in favor of more urgent
operational concerns. This stance, though, might have some negative MARKET DEVELOPMENT STRATEGY
implications for the company in the long run. One, without appropriate Utilizing this strategy means selling the company's existing
training and development programs, some employees might not products to new markets. This can be done by targeting new
develop the right skills needed to perform their jobs at high levels of geographical markets, catering to new demographic markets, or selling
performance. This to industrial buyers what was once sold only to households.
could affect the quality of service given to customers. Two, companies New geographical market. This means selling existing
might lose valuable talent, especially those who feel that their products to customers in new locations (eg, other cities, other
potentials can be more fully realized if they work elsewhere. This provinces, or other countries. For example, Bo's Coffee Club, which
brings us to the challenge of building employee commitment. started out as a coffee place in Cebu, has since branched out to Metro
Manila and other parts of the country. Mang Inasal, which set up its
BUILDING EMPLOYEE COMMITMENT first branches in loilo and Capiz, similarly expanded across the
archipelago.
Retaining valuable talent depends a great deal on building New demographic market. Demographics are statistical
organizational commitment -the extent to which an individual characteristics of human populations (eg, age, sex, education, income).
identifies with and is involved in his or her organization, and is, Selling to a different demographic group means offering the same
therefore, unwilling to leave it. Entrepreneurs must make sure that as product to a segment of a market that has a different set of
the business grows, employee commitment does not wane. characteristics. For example, mobile phone manufacturers might
There are three kinds of organizational commitment: initially target young professionals, who have the money to buy cell
Continuance commitment refers primarily to the costs of leaving. For phones, but could later target the teenage market too.
example, an employee might have second thoughts leaving a company Expanding to industrial buyers. Small businesses might begin
because this might mean giving up an attractive compensation package selling their products to individuals, but later graduate to servicing
or being away from close friends. Affective commitment refers mainly industrial buyers. Some bakeries, for example, started selling bread to
to a person's positive feelings toward the company and what its core a small neighborhood. Then later supplied hotel chains with bread and
values are. Finally, normative commitment refers to an employee's baked goods. Small furniture workshops might later expand to provide
feeling of obligation to others (e.g., the business owner who gave him the furniture needs of large business establishments.
his first job; a manager who has served as a' mentor) who might be
negatively affected by their departure. PRODUCT DEVELOPMENT STRATEGY
It is also worth noting that individuals who are highly Using product development strategy means creating new
committed to their organizations demonstrate higher willingness to products and services targeted at the firm's existing markets. This is a
share and make sacrifices to help their organizations, especially during logical strategy, especially tor companies that understand the needs of
hard times. They are likely to exhibit organizational citizenship or their customers well. Companies can expand their product range by
actions that go beyond the formal requirements of the job. These coming up with product innovations, acquiring rights to produce
actions would include helping coworkers on the job, giving customers someone else's product, or buying in a product and "branding it.
special attention, and speaking well about the company Clearly Selecta Ice Cream, for example, has come up with variety of
organizational commitment works to the benefit of the company. flavors, from which its loyal customers can choose. These include the
Steve Jobs, the late cofounder, chairman, and CEO of Apple, Inc. Classic Flavors such as Chocolate, Ube, Strawberry, and Mango; the
captured this in his words: "The only way to do great work is to love Supreme Flavors such as Rocky Road, Quezo Real, Mango & Cashews,
what you do.” and Macapuno Ube Langka; and the Co-Brand Flavors such as
Hershey's Milk Almonds, Mrs. Fields Chewy Chocolate Chip Cookie, and
Growth and Exit Strategies Oreo Cookies and Cream.
 Suyen Corporation, the company behind Bench, has built a entrepreneur. Imagine being in charge of marketing, operations, HR,
formidable portfolio of brands, which made it "the leading lifestyle and finance, all at the same time. The question is: Does the
retailer in the Philippines and the region." Its portfolio includes local entrepreneur have all of the skills and experience needed to run an
apparel and accessories such as Bench, Bench Body, Bench for Her, increasingly complex business? If not, this can serve as a limit to the
Human, Kashieca, and Bench Accessories; international apparel and growth of the company. This can only be remedied by hiring qualified
accessories such as Celio, American Eagle Outfitters, Karen Millen, La managerial talent that can bring the business to the next level.
Senza Lingerie, and Vero Moda; and shoes and bags such as Aldo, Third, rapid growth could result into the company's
Charles & Keith, Pedro, Call It Spring, and Repetto. resources being stretched too thinly. For example, an unusually big
order from a customer is an opportunity that small business would not
DIVERSIFICATION STRATEGY want to forego, but would require additional working capital. Growth
The use of diversification strategy means growing the might also require the acquisition of new equipment and the hiring of
business by introducing new products in new markets. This 1s the either regular or contractual employees so as to expand capacity.
most capital-intensive, and probably the riskiest, among the four types Conceivably, a rapidly growing firm becomes vulnerable to unexpected
of growth strategies because this requires both product and market expenses that Just might go out of control. The entrepreneur can
development efforts. Diversification can be done through vertical address these by pouring in more money to the firm, by getting other
integration or horizontal integration. people to invest in the business, by availing of a loan, by implementing
Vertical integration means expanding the scope of business strict financial controls, or by tempering the pace of growth.
operations by either moving backward or moving forward the value
chain. Backward (or upstream) integration refers to taking a step back EXIT STRATEGIES
on the value-added chain toward the raw materials, while forward (or Entrepreneurs decide to "exit" the business for a variety of
downstream) integration refers to taking a step forward on the value- reasons. Some want to spend their time on another endeavor, perhaps
added chain toward the customers. Horizontal integration, on the another business. Others might be preparing for retirement. Some
other hand, occurs at the same level of the value-added chain. It might want to cash in by selling the business to an interested buyer
involves a product or service from a different, but complementary, willing to pay a big amount. Others are forced to cease operations
value-added chain. because of continuing losses or because of bankruptcy. In this section,
The Universal Group of Companies, a conglomerate of we discuss several exit strategies.
several forms based in Zamboanga City, is a good example of how a
well-thought out diversification strategy can work. Over the years, it SUCCESSION IN A FAMILY-OWNED BUSINESS
has effectively executed its strategy of controlling all activities in the Some entrepreneurs reach a point in their lives where they
value chain from acquiring raw materials to selling its final products to want to enjoy the fruits of their labor. They want less stress and more
the market. Whereas its core company Universal Canning inc. (UCI), leisure time for themselves, something they cannot do if they are still
previously provided toll-packing services tor local and international actively engaged in managing the business. However, they want to
sardine brands, it moved downstream by introducing its own sardine keep the business under the control and management of the family. So
brand. Family's Brand emerged as the fastest-growing sardine brand in they choose to transfer ownership of their businesses to family
the country, capturing significant market shares in the Visayas and members. They can do this gradually by sharing power with their
Mindanao. UCI later bought the Master Sardines brand from its former chosen successors, exposing them to the various aspects of the
toll- business until they gain enough confidence and experience to
packing client, to be able to penetrate the Luzon market. It eventually take over. Some set up a trust-an agreement between the
also bought the Atami and Mikado brands, which had a strong entrepreneur and a trustee (e.g., bank officers or attorneys). The
presence in Mindanao, particularly in Cagayan de Oro and Davao. trustee receives legal title to the property (eg, stock in the company)
The strategy of UCI to aggressively expand its market was and hold it for the beneficiaries of the trust (e8, entrepreneur's
supported by the operations of its sister companies both upstream and children). The entrepreneur, therefore, retains control of the company
downstream: Zamboanga Universal Fishing Corporation, the largest for a limited period of time, after which the beneficiaries receive the
deep-sea fishing in Mindanao, caught the fish; Universal Shipyard title of the stock and assume control of the business.
maintained the fishing fleet; and Universal Ice Plant and Storage
ensured that the sardines stayed fresh before they were canned. UCI SELLING THE BUSINESS
itself invested in PHP s00 million-worth of facilities and equipment (eg, Entrepreneurs also have the option to sell the business. They
a club canning line, a blast freezer, and a cold storage facility), which may decide to sell their equity to insiders (1.e., their managers and
allowed it to produce flat club cans suitable for the huge European employees) or to outsiders (1.e., individual or institutional buyers).
export market. prior to this, the company had already been exporting
both the Family and Master brands to the United States, Middle East, Management buyout.
and East Asia. When an entrepreneur decides to sell the business, he could
offer it to top managers, who are not co-owners of the business. These
IMPLICATIONS OF GROWTH FOR THE FIRM AND THE ENTREPRENEUR individuals presumably understand the company's products and
A business venture derives several benefits from growth. services, it finances, its structure, its culture, its various stakeholders,
First, it derives cost advantages due to economies of scale. Because and its prospects for the future, and might be interested to become
the company's level of production rises, the cost per unit of output the new owners of the business. If they have enough cash, they can
decreases due to fixed costs being spread out over more units of make an outright purchase, or they can negotiate an agreement, under
output, Second, a bigger firm gain bargaining power. It is able to get which they make a down payment and then pay the balance over a
better prices from suppliers, who might be willing to give a substantial period of time.
discount for large purchases; or get lower interest for loans from Another option is the leveraged buyout. Under this
commercial banks. Third, growing big enhances the legitimacy of the arrangement, the managers borrow money from a bank in order to
business, as customers, creditors, investors, and other stakeholders pay the owner an agreed-upon price. The lenders can, then, accept an
will think that it is now more stable and worth being associated with. equity position in c company or ask the new owners to pledge their
In other words, the entrepreneur gams more power and access to stock As collateral for the loan. Since the new owners involved in a
resources as the business grows bigger leveraged buyout are already running the business, there is not much
Growing big, however, also brings along. With it, certain disruption n the Company's operations.
challenges, especially with regard to a company's human and financial
resources. Employee stock ownership plan. (ESOP).
First, the pursuit of growth is bound to increase the pressure An employee stock ownership plan involves giving
on the company’s existing set of employees tO produce or sell more. It employees shares in the company as a bonus, depending on the
not managed properly, this could result into any or all of the following profitability of the company. Under an ordinary ESOP the entrepreneur
problems: decrease in employee morale, stress and burnout, and sets up an employee stock ownership trust (ESOT) and contributes a
increase in employee turnover. These could affect the quality of certain percentage of the company s payroll annually in the form of
service that the company provides, ultimately affecting customer cash or stock. If the contributions are in cash, the trust purchases
satisfaction, as well. This can be addressed by ensuring appropriate shares of the company's stock at fair market value. It the contributions
stafting levels, making sure that employees are properly compensated are in stock; the shares are simply held in the trust for employees. In
and recognized for their efforts, and by establishing a strong team this way, ownership is gradually transferred to the employees.
spirit through enlightened and nurturing HR practices. The ESOP can also take the form of a leveraged plan. Under
Second, growth means having to deal with a greater number this
of concerns, which take so much of the time and energy of the
arrangement, the ESOT borrows money from a bank or other financial ______6. It is anchored on the principles of human dignity and the
institution and uses the loan to buy stock from the company. The common good.
company guarantees that it will contribute sufficient funds or stock to ______7. It is based on the conviction that each person is an image
the ESOT to cover both the principal and interest of the loan, and it of God and so is endowed with dignity or value.
pledges stock in the company as collateral for the loan. ______8. It focuses on the person as an end in himself or herself, and
The ESOP provides a mechanism to reward employees who not merely an instrument valued only for his/ her
have been loyal to the venture, particularly during difficult times. It usefulness.
also ______9. It gives importance to the fulfillment and well-being of the
allows entrepreneurs to gradually exit from their companies. Over a employee.
period of time, such plans allow entrepreneurs to transfer ownership ______10. It is more on giving trainings so that the goals of the
of company will be achieved.
the business to employees.
B. Three Kinds of Organizational Commitment:
Sale to outsiders. a. Normative commitment
While many businesses founded by entrepreneurs are sold b. Affective commitment
to insiders, others are sold to people who are not currently involved in c. Continuance commitment
the company. Potential buyers include direct competitors who want to
expand their market share, non-direct competitors who wish to enter ____ 1. “ I will not leave the company because I will be leaving a
into market the entrepreneur's company currently serves, and bestfriend behind.”
noncompetitors who see the company as a good investment ____ 2. “ I cannot resign because I become expert as a finance
opportunity manager because of my employer.”
If the entrepreneur has decided to sell the business, but does ____ 3. “I will continue my service here because I learned to love
not need to sell immediately, he can do the following activities that my workplace.”
can raise the value of the business: (a) concentrate on keeping costs ____ 4. “ I will retire working here because I am grateful with the
under control; b) focus on getting healthy margins; (c) ensure that the values they show to the workers.”
capital equipment are up-to-date and properly maintained; (d) ____ 5. “ My uncle gave this job for me so I will not dishearten him
maintain a good management team; and (e) get all financial by leaving.”
statements in order.
While there is likely to be potential buyers for a sound C. Answer/ Do the following:
business 1. Discuss the difference between the strategic human resource
finding them is not always an easy task. An entrepreneur might need approach and the integral human development approach in
to hire a business broker, a company that specializes in arranging the managing employees .Which do you think is more appropriate in
sale of existing businesses. If the business is quite large, on the other the Philippine setting? Explain your answer.
hand, the entrepreneur might need the services of an investment
banker who can arrange the large amount of financing needed for such 2. If a business venture does not have the financial resources to pay
a sale. employees very high salaries, are there other ways it could attract
and retain the talent it needs to grow the business? How?
BANKRUPTCY
Bankruptcy happens when a company cannot pay its debts. 3. If you are to use the IHD approach in your management, what
In other words, it lacks the resources to meet its existing obligations. plans and programs will you prepare for your employees? Fill out
Tell-tale signs of bankruptcy include the following: (a) the sudden the table. Pattern is given below.
departure of top people; (b) supplies and materials needed to meet
orders are lacking; (c) large and increasing discounts to customers; (d) COMPANY ACTIVITIES 2021
payroll taxes are not promptly paid; (e) demands from creditors that HID DIMESIONS Programs/ events
payments be made in cash; and (f) growing complaints from customers
Bodily Development
about poor service and product quality.
Cognitive Development
For most companies, the chances of recovering from
bankruptcy are slim. Most of them must liquidate or sell their assets so Emotional Development
that they could pay off their creditors. The company, therefore, ceases Social Development
to exist. Aesthetic Development
Other companies engage in reorganization efforts to save the Moral Development
company from liquidation. In this case, creditors give bankrupt Spiritual Development
companies a chance to pay their debts gradually. These companies
must present a plan showing how future income will be budgeted and
how their liabilities will be paid. This is permitted by the courts only 4. If you are the interviewer of an applicant ( choose any position) for
when there 1s a reasonable chance for the company involved to your business, what are the things you will require/ ask? Make a
actually repay a sizeable portion of its debts. Some of these companies script of your interview. It should contain questions from you as
manage to recover, and ultimately survive. the interviewer and the expected answers from the applicant.
Entrepreneurship, just like any human activity, is exciting ( short coupon bond).
precisely because it is uncertain. There is both the risk of failure and
the promise of success. Many of our successful entrepreneurs started 5. What are the reasons why entrepreneurs decide to exit the
out with ideas that failed, but they persevered until they find the right business? Give five.
formula. This is a testament to their tenacity. As F Scott Fitzgerald once
said, "never confuse a single defeat with a final defeat." 6. What benefits can a business venture derive from growth ? Give
some challenges too.

ACTIVITIES: 7. Why do businesses go bankrupt? What do you think are the main
HUMAN RESOURCE FUNCTIONS reasons for the failure of many businesses, especially micro- and
small-scale enterprises?
A. Which alternative approach to managing people is described by
each statement? HRM or IHD? 8. If the owner of Pinoy Corporation decides that the average price
per pair can be raised to 1,200 pesos without substantially
______1. Its goal is to enhance an organization’s efficiency. affecting the demand for the product, what would be the new
______2. It focuses on the quality, innovation, and responsiveness to breakeven quantity? If, however they decide that the price ought
customers which would build competitive advantage. to be cut to 900 pesos to make their shoes more affordable to their
______3. It is instrument for achieving organizational goals. target market, how many more pairs should they sell to break
______4. It concentrates on recruitment and selection, compensation even? Show your solution.
and benefits, training and development.
______5. It looks on the performance evaluation, quality of work life, 9. How do you interpret the financial statements as to the
and employee, and labor relations. profitability, liquidity and efficiency?
PERFORMANCE TASK (PER GROUP) : ( Short coupon bond, Calibri 10)
Complete now the business plan for the business venture that you
launched. Include your financial report too.