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CHAPTER 6 THE ORGANIZATIONAL PLAN information to assure the potential investors and creditors that the money
they will pour into the business will be in good hands.

The organizational plan must provide a

LEARNING OBJECTIVES
1) Background of the management team
After reading this chapter, you should be able to: 2) Describe the organizational structure
- Define what an organizational plan is 3) Describe the
- Explain the advantage and disadvantages of the different legal -management team’s role
forms of ownership -responsibilities
- Discuss the organizational structure of the business -reporting relationships
- Explain how the bards of advisers can provide support to the 4) Outlines the
management team of a news business venture -planning
-decision-making
-monitoring
INTRODUCTION -evaluation processes
5) Spells out the role of the board of advisers among others
After the entrepreneur identifies te needs of his target market and
spells out his strategy and action plan, he can now proceed to the legal and FORMS OF OWNERSHIP
organizational aspects of setting up the business. In this chapter, we discuss
the different advantages and disadvantages of the different forms of One of the important decisions an entrepreneur must make is the
ownership. We also emphasize the need to highlight the qualification, skills form of ownership the business will take. He could choose from any of the
and business experience of the proposed business’s principal owners, and three basic legal forms of business ownership – sole proprietorship,
its management team. We also touch on the important role played by partnership or corporation – each of which has its advantages and
business advisers who could fill in some competency gaps of a new disadvantages.
business. The table below compares the three legal forms with regards to;
WHAT IS AN ORGANIZATIONAL PLAN? ownership, cost and ease of starting the business, liability of owners,
distribution of profits and losses, management control, ability to raise
The organizational plan is the section of the business plan that capital, transferability of ownership and business continuity.
identifies the form of ownership the business venture will take. It provides a
background of the management team; describe the organizational
structure, including the management team’s roles, responsibilities and
reporting relationships, outlines the planning, decision-making, monitoring,
and evaluation processes, and spells out the role of the board of advisers
among others. This section of the business plan must provide sufficient
 As its name implies, the sole proprietorship is owned by the
individual who starts the business, for which he has full responsibility. In a
THINGS TO SOLE partnership, there must be at least one general partner, and some or many
PARTNERSHIP CORPORATION
CONSIDER PROPTIETORSHIP limited partners. In a corporation, owners are those that hold shares of
stock. For both the partnership and corporation, there is theoretically no
No limit of No limit on number
Ownership One person limit in the number of partners and stockholders, respectively.
partners of stockholders
COST AND EASE OF STARTING THE BUSINESS
Cost and ease
of starting the Low; easy Low; relatively low High; more difficult As the simplest form of business ownership, sole proprietorship is
business
the easiest to create. Upon paying the required business licenses, the
Unlimited for Stockholders entrepreneur can immediately start the business. Consequently, the costs
Unlimited; risk
Liability of general partners; typically not liable involved in setting up a sole proprietorship are also lower compared to the
shouldered by
owners limited for limited beyond their other two.
owner alone
partners investments
A partnership is also relatively easy and inexpensive to set up. What
depends on
Distribution of Owner receives stockholders share makes it different from a sole proprietorship, though, is the need for a
partners’
profits and all profits and profits though partnership agreement. The preparation for this document would require
investments and
losses carries all losses dividends some legal advice and must clearly state the rights, duties and
agreement
general partners majority responsibilities of the parties involved. Pieces of information that are
Management Owner controls have equal control stockholders have typically included in a partnership agreement are the following:
control all decisions and majority control over legal
rights standpoint a) Contribution of each partner to the business
Ability to raise b) How profits and losses are distributed
Limited Moderate High
capital c) Agreement on partners’ salaries and drawing rights against profits
stockholders can d) Procedures in expanding or dissolving the business
Transferability typically needs e) How the partners can sell their interest in the business
fully transferable sell or buy stock at
of ownership partner’s consent
will f) How the assets will be distributed if the partnership is dissolved

Death or The corporation is an artificial being created by law. Establishing one is

Business owner’s death Death of general
withdrawal of relatively more difficult compared to forming a partnership or a sole
continuity dissolves the partners dissolves
owners doesn’t proprietorship. That is because of the various legal requirements it must
business the business
affect the business
satisfy, which makes the registration process complex. Among the
information that individuals creating a corporation must provide include
the following:

OWNERSHIP a) corporation’s name

 b) corporation’s by-laws One of the advantages of being a sole proprietor is that one gets to
c) statement of purpose keep all profits of the business. Conversely, the sole proprietor also carries
d) length of time it will exist all the losses if the business does not perform well.
e) business address
f) name and addresses of incorporators In a partnership, the distribution of profits and losses depends on
what is provided for in the partnership agreement. Partners with larger
g) name and addresses of officers of the corporation
h) capital stock authorization investments are likely to get a bigger share of the profit. For limited
partners, being protected from personal liability may mean getting a
Needless to say, setting up a corporation means paying attorney’s fees and reduced share of profits in favor of general partners, who assume much
various government fees. greater risk.

LIABILITY OF OWNERS In corporations, profits are distributed to stockholders through

dividends. Some of the profit, though, might not be declared as dividends
The sole proprietorship is liable for all aspects of the business, as is and will be kept as retained earnings to finance future capital requirements
the general partner in a partnership. This means that in case the business is of the business. If the corporation incurs a loss, then stockholders might not
unable to pay for outstanding debts, the creditor can go after the assets of get dividends at all, until after the business recovers from its slump.
the proprietor or general partner even outside of the business. Because of
unlimited personal liability, sole proprietors and general partners can be MANAGEMENT CONTROL
forced to sell their personal properties, including their cars and houses, to
pay off the debts that cannot be completely covered by the assets of the Choosing a particular form of ownership has implications on
managerial decision-making and control.
business.

In a partnership, the general partners usually share the amount of In a sole proprietorship, the entrepreneur has great control and
flexibility in making decisions. This is especially true in a small-scale
personal liability regardless of their capital contributions, unless there is a
specific agreement to the contrary. The limited partners, on the other hand, business, where the owner-manager decides on purchasing, marketing,
finance, human resource management, and other business functions. When
are liable only up to the amount that they contribute to the partnership.
the business grows, however, the entrepreneur might choose to delegate
In a corporation, the owners are liable only up to the amount of the management of certain business functions to a professional manager,
their investment, unless there is negligence or fraud involved. This is who could make decisions that fall within the scope of his responsibilities.
because the corporation, given its legal personality, absorbs the liability. The Ultimately, though, the entrepreneur exercises authority over all business
limited liability of stockholders is one of the major advantages of decisions, and can even over turn decisions of managers reporting to her.
establishing a corporation, although this comes with some cost.
In partnership, the element that ideally binds the parties is trust.
DISTRIBUTION OF PROFITS AND LOSSES Partners are, therefore, assumed to make decisions meant to benefit the
business and to protect the interest of the parties involved. In some
partnerships, in fact, several partners are willing to entrust their investment
to one of the partners, who might be the one managing the business on
their behalf. Ever heard about the business deal “sealed by a handshake”? Just like any human activity, people can change their minds about
Business, after all, is a human activity more than a legal affair. things, including their desire to be a business owner.

For those who prefer the legalistic approach, however, it might be a In a sole proprietorship, the entrepreneur has the right to sell the
good idea to be explicit about the control over business decisions so as to assets of the business or to transfer its ownership to another individual. For
sustain goodwill between the parties involved. This can be spelled out in the limited partners that belong to a general partnership, they can typically sell
partnership agreement. their interest at any time even without the consent of the general partners,
unless otherwise stipulated in the partnership agreement. For general
For corporations, control over the business depends on the type of partners who want to sell their interest, they usually have to offer this to
business decisions and on the scale of the enterprise. For day-to-day the remaining general partners who have the right to first refusal.
business activities, control is typically in the hands of the management
team, the members which may or may not be major stockholders. For start- Shareholders of corporations have the most freedom in terms of
up enterprises, major stockholders will likely be managing the business too. transferring their interest in the business. They may sell their shares of stock
For major long-term decisions, management will need the vote of the major to other parties, whether these are individuals or organizations, even
stockholders. As the corporation becomes bigger, it is likely that owners will without the consent of other stockholders. If the shareholder owns a
be more concerned about major investment decisions and long-term significant portion of the business, though, a transfer of interest could mean
prospects of the business. Acting as member of the board of directors, the a change in the composition in the board of directors, if the new
stockholders appoint trusted individuals to constitute the management shareholders exercise their right to elect individuals that they believe will
team, to whom they can delegate the operational concerns of the business. protect their investments. Shareholder agreements, however, can give
existing shareholders the option of purchasing stock at a specific price or at
ABILITY TO RAISE CAPITAL an agreed-upon price, an arrangement similar to the right to first refusal, as
Sole proprietors typically depend on their own resources to finance previously mentioned.
business operations. Generally, it is difficult for them to secure loans from CONTINUITY OF BUSINESS
commercial banks, who might be reluctant to provide financing because of
the risks involved. Many small business owners also get turned off by the For sole proprietorships, the death of the owner means the
numerous documentary requirements involved in securing a loan, termination of the business as well. In a partnership, the death or
preferring to secure money from informal sources. withdrawal of a general partner signals the end of the partnership too.
However, the partnership may continue of the partnership agreement
Partnerships are relatively better off than sole proprietorships, in provides for the buyout of the share of the partner who died or withdrew,
the sense that they are able to pool the financial resources of the partners. based on predetermined value. A family member of the deceased partner
Corporations, however, have the most options in terms of raising capital. can also take over as a partner, if provided for in the partnership
They can sell shares of stocks to investors, who do not have to worry about agreement. If there are limited partners in a general partnership, their
unlimited personal liability. Corporations also typically have the means to death or withdrawal does not affect the continuity of the business.
secure bigger loans from commercial banks. Corporations on the other hand, can continue indefinitely. Death or
TRANSFERABLITIY OF ONWERSHIP withdrawal of a shareholder does not affect the existence of the business
since shares of stock are transferrable or can be sold to other individuals or THE MANAGEMENT TEAM
companies.
If the enterprise has a management team that is largely distinct
ORGANIZATION STRUCTURE from the business owners, it is best to highlight their qualifications, skills
and managerial experience, especially in relation to the position, for which
This section of the organizational plan will show the reader of the they will be handling. These details, including their job descriptions, can be
business plan the principal owners of the business, the management team presented in summarized form, as shown in the figure below. Similar with
and the ones who advices the business owner’s and the management team. the business owners, the managers’ curriculum vitae can be appended to
In a small entrepreneurial venture, the organization structure could be as the business plan. The goal is to convince the reader of the business plan
simple as the owner-manager being at the helm of the enterprise with a few that the management team is composed of a good mix of individuals with
individuals directly reporting to him. As the workload increases, though, the complementary skills that will increase the chances of the business being
business will need additional employees, with more defined roles and run effectively.
responsibilities.
The table shows the details about the Management Team
BUSINESS OWNERS
NAME OF JOB TITLE, DUTIES QUALIFICATION MANAGERIAL
One section of the organization plan could be a listing of the MANAGER AND RESPONSIBILITIES S EXPERIENCE
business owners and their qualifications. Their previous entrepreneurial
experience, if any, and the extent of their investment in the business could
also signal who among them would have a strong influence In determining
the general directions the business will take.
In addition, it would help to present an organization chart that
The table below shows an example of detailed curriculum vitae that shows the reporting relationship within the business. An example of an
can be appended to the business plan showing details about the business organization chart for a small company is shown below. Notice that the
owners. managers handle multiple positions. The purchasing and production
functions are managed by one person, the sales and marketing functions are
NAME OF handled by another manager while the finance and human resource
PREVIOUS
MAJOR OWNER CAPITAL
QUALIFICATIONS ENTREPRENEURIA management functions are handled by a third manager. As the business
(PARTNERS OR CONTRIBUTION
L EXPERIENCE grows bigger and its operations become more complex, this might require
STOCKHOLDERS
an individual handling only a specific function. For example, the purchasing
and production functions might need to be placed under the responsibility
of two separate managers, instead of one. Alternatively, the current
purchasing and production manager might assign a purchasing supervisor
and a production supervisor from among the members of his team, creating
another layer in the organization chart.
 notebooks made of hyacinth leatherette, was able to get Jacobs to design its
MELINDA DELA CRUZ first collection of bags. The business in turn, supports the special livelihood
(PRESIDENT) program of Cora Cares Foundation.

For new ventures that might not have the personal network from
JOEL MORALES JUSTIN ROBREDO SYLVIA DEL ROSARIO
which to get advisers, they can avail of support programs offered by the
(PURCHASING & (SALES & MARKETING (FINANCE & HR
PRODUCTION MANAGER) MANAGER)
government, such as the Department of Trade and Industry’s SME Roving
MANAGER Academy (SMERA), an ongoing learning program meant to develop micro,
small and medium enterprises (MSMEs) into competitive players in both the
PRODUCTION SALES AND ADMINISTRATICE domestic and international markets. SMERA is implemented with the help
TEAM MARKETING TEAM ASSISTANT of partner institutions from local government units, industry associations,
business services development providers, training institutions and academe.
It provides small businesses with an SME counselor, who provides the
entrepreneur with general advice on the training that he might need after
It is rare for a new or proposed venture to have all the expertise it
conducting a preliminary diagnosis of the needs of the business. The
needs to grow the business at the onset. It is best to be candid about this.
counselor also keeps track of the progress of the entrepreneur that availed
The business owners, however, reinforce their management team by having
of the business development services offered.
a board of advisers or consultants – a group of individuals that the company
invites to provide their inputs and insights on how to run the business. This
allows the owners of the new business venture to draw upon these
individuals’ expertise like knowledge about the industry, about the market
or about legal matters, and extensive business and/or managerial
experience. The business owners can engage their advisers through legal
regular face-to-face meetings, or through phone calls or teleconferencing, if
this is more convenient for both parties. Business partners who are well
respected in the community might also be able to rub on their goodwill on
the business venture that they are supporting, aside from linking them to
reliable suppliers and prospective markets.

Given the limited resources of new ventures, it might be too

expensive for many of them to pay the services of these individuals.
However, some of these advisers might be willing to share their expertise
for a reasonable amount or even free if they believe in the new venture or if
it is aligned with their personal advocacy. What comes to mind is the
partnership between Jacinto & Lirio (J&L) and world-renowned designer
Cora Jacobs J&L, a social enterprise known for its high-end bags and
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CHAPTER 8 MANAGING THE MARKETING FUNCTION aware of the product and then to create a positive image of the product in
the minds of the potential buyers.

Before a potential buyer makes a purchase, he goes through several

LEARNING OBJECTIVES stages:
After reading this chapter, you should be able to: a) Recognizing a need or want
- Explain how customers make decisions b) Seeking or retrieving information
- Discuss how a new business venture can cultivate customer c) Evaluating choices
relationship After these, he proceeds to the next two stages
- Explain how a new business venture can build and manage its brand
- Describe the emerging marketing practices that new business d) Making a purchase
ventures can adopt e) Assessing the product or service experience

Some people, however, skip some stages. For example a man who runs
INTRODUCTION out of disposable razors, might just run to the closest convenience store
to buy his usual brand. He does not anymore evaluate his choices,
In chapter 5, we discussed what comprised the marketing mix and something that he must have done in the past. In general, though, “the
explained what must be considered in coming up with strategies related to buying process starts long before the actual purchase and has
product, price, place and promotion. In this chapter, we tackle more specific consequences long afterward.”
aspects related to the execution of the marketing strategy. First we look into
how customers make decisions. Knowing this, we dwell into what a business RECOGNIZING A NEED OR WANT
can do to cultivate its relationship with the customers and to build and
manage its brands. Finally we look into emerging, marketing practices and When an individual recognizes a need or want, the buying process
begins. This need or want can be triggered by internal or external
what businesses with limited resources can utilize.
stimuli. When a person feels hungry or thirsty (an internal stimulus), for
UNDERSTANDING HOW CUSTOMERS MAKE DECISIONS example, he as compelled to satisfy his desire for food and drink. When
he sees a television commercial that features a pair of jeans or a travel
Individuals behave differently even when they are faced by the magazine article that features resorts and destinations in Bohol (an
same situation. That is because they perceive situations in different ways. external stimulus), this could encourage him to go to the mall or to
Their perceptions are influenced by their operative needs and wants, their contact a travel agency to inquire about a vacation package,
past experiences, and their personal values. Entrepreneurs must recognize respectively.
this. They must acknowledge that, more than the actual features of the
product or service, it is how the consumer perceive this product or service By understanding what triggers customers’ needs or being
that will lead them to make a purchase. The challenge for an entrepreneur conscious about these situations, the entrepreneur can come up with
introducing a new product to the market is to make the tarket market be
 appropriate marketing or promotional strategies that could get the merely satisfied might decide to seek further information, especially if there
interest of their potential customers. are other options available. The buying process is, therefore, repeated.

ASSESSING THE PRODUCT OR SERVICE EXPERIENCE CULTIVATING CUSTOMER RELATIONSHIPS

After making the purchase, the customer assesses his experience in Entrepreneurs must not only aim to sell their product once but also
using what he bought. If the performance of the product falls short of his to get repeat sales from satisfied or delighted customers. Thus, it is essential
expectations, he is disappointed (nadismaya); if it meets his expectations, for companies to cultivate its relationship with customers.
he is satisfied (nakontento); if it exceeds his expectations, he will be
CUSTOMER EQUITY
delighted (nasiyahan). The customer’s decision to buy the product again or
to recommend it to share to other people will depend on whether his A business must aim to produce high customer equity. Customer
experience is positive or not. equity refers to the total lifetime value (or estimated lifetime revenues less
Take note that the customer will gauge the performance of the expenses) a company can generate from all of its customers. In practical
terms, a company wants a steady, if not increasing, pool of loyal customers
product partly on the promises made by the company when it advertised or
promoted the product. Making exaggerated claims about a mediocre so thaht it will be able to generate continuing revenues from them.
product is likely to backfire. Therefore, there is logic in the slogan “truth in There are three types of customer equity:
advertising”. In short, product claims must truthfully represent the
product’s ability to satisfy the customer’s need. 1) Value equity
2) Brand equity
For dissatisfied customers, they might choose to return the product 3) Relationship equity
and ask for a replacement. If this action does not prosper, some of them
might go a step further b complaining to the company. In an extreme case, VALUE EQUITY – is the customer’s objective assessment of the utility of a
they might take legal action. product or service based on his perception of what he is giving up for what
he is receiving.
How customers react to dissatisfication can be classified into 2:
BRAND EQUITY – is the “customer’s subjective and intangible assessment of
1) The exit option – deciding not to buy the product again the brand, above and beyond its objectively perceived value.
2) The voice option – warning others not to buy the product, or
seeking redress from the company that sold the product RELATIONSHIP EQUITY – is the customer’s tendency to stick with the brand,
above and beyond his objective and subjective assessment of the same.
For satisfied and delighted customers, there is a greater chance for
them to purchase the product or avail the service again. When the need for To improve value equity, the business must find ways to address
the same product or service arise in the future, the customer’s previous issues related to price, quality and convenience. One good examples is how
experience will form aprt of the information that he retrieves. A delighted Agoda.com makes it easier for travelers to book hotels at their desired price
customer will probably skip some of the above-mentioned steps, and just and quality levels. Prices are typically lower than if the customer books
proceed to buy the product or avail the service again. A customer that is directly with the hotel. The transaction, including revised bookings,
cancellations, or credit card payments can be completed within minutes are very familiar with the health and fitness requirements of clients they
through the Internet. have worked with over the years.

To improve brand equity, the business must find ways to increase Another strategy is to add structural ties with the customer.
brand awareness, to improve the customers’ attitude toward the brand, and Examples include multi-year newspaper or magazine subscriptions that are
to project an ethical image to the public. This can be done through offered at a large discount; or telecommunication companies that give free
advertising, public relations, social media campaigns, and even free media mobile phones to their clients, who have to stick to their postpaid services
exposure, among others. The social enterprise Bayani Brew, for instance, for at least a year or two.
experienced a big boost in its sales after it was featured in the popular daily
morning show Kris TV. BUILDING OR MANAGING YOUR BRAND

A brand, as defined by Merriam-Webster, is a “category of products

To improve relationship equity, the business can introduce loyalty
programs, community-relations programs, and knowledge-building that are all made by a particular company,” all having a particular name. it is
also defined as a “unique design, sign, symbol, words or a combination of
programs, among others. This is typically done by large multinational
companies, often through their corporate foundations. these, employed in creating an image that identifies a product from its
competitors.” Over time, this image is associated with a level of quality and
CUSTOMER LOYALTY credibility in the consumer’s mind.

Customers are now more demanding and harder to please, because Brands are important because consumers can make a purchase
they have more options to choose from. Thus, it has become more difficult decision based on how products or services are branded. Consumers get to
for businesses to retain their customers. So how can businesses build know brands through their past experiences with products and how they
customer loyalty? are advertised or promoted. Some of these products satisfy their needs;
some do not. If they have a positive experience with the brand, then their
There are several ways: subsequent decision-making becomes easier. They need not spend valuable
One way is through frequency programs, which are designed to time evaluating their options. Going fo the “tied-and-tested” brand assures
reward customers who buy often and in substantial amounts. This could them of the product’s quality.
take different forms, such as the frequency flyer miles offered by airlines, Clearly, brands associated with quality and dependability can result
which travelers can convert into free flights; or free meals offered by fast- to customer loyalty. This can lead to a steady demand for the firm’s
food restaurants to customers after they buy a minimum amount for several products. Loyal customers might also willing to pay a higher price for
visits. reputable brands.
Another way is to personalize customer relationship. Some loyal To build brand equity, a business venture must undertake several
clients for example, will go back to the same barber or hairdresser, who key activities. First, it must choose brand elements that will serve to identify
might be great conversationalists and with whom they might have built and differentiate the brand. Second, it must engage in marketing programs
friendships. This should also be the case with gyms whose fitness trainers and at building the brand.
CHOOSING BRAND ELEMENTS acronym “CBTL.” Acronyms are also being utilized be television shows
(MMK, OTWOL), partly due to the ease to attaching these to hashtags
Brand elements are those things that make a brand distinct. These (#MMK, #OTWOL), which are a staple of social media.
include brand names, logos, symbols, mascots, jingles, and slogans.
Examples that are familiar to Filipinos are the following: Memorable slogans are also powerful. Nike’s “Just Do It” is a classic as is
“Intel Inside.” In the Philippines, we even have slogans that have stuck to
1) Philippine Airline’s stylized image of the national flag, which serves our collective memories. Hapee toothpaste’s “kumukuti-kutitap,” for
as its logo example, is cute, indigenous and alliterative. And who does not remember
2) The slogan “Langhap Sarap,” which is clearly associated with Jollibee Family Rubbing Alcohol’s slogan “Hindi land pangpamilya, pang isports pa”?
3) The “swoosh” logo of Nike That it has survived decades is a testament to its being memorable.
4) The three stripes of Adidas
5) The Oblation which is identified with the University of the Meaningful. For a brand element to be meaningful, it must be credible
Philippines and must also communicate the distinction of the brand. In the Philippines,
6) And the catchy tourism slogan “It’s more fun in the Philippines” Tide has always played around the theme of “whiteness”; thus the slogan
“kung mukhang imposibleng paputiin, Tide and gamitin,” whihch it used
Whether these brand elements could really build the brand depends on successfully for several years. The competing brand Surf, on the other hand,
how these are able to elicit positive thoughts and feelings to the consumers centered its advertising on the theme of a smart housewife, who could use
once they encounter the brand element. For example, the mascots of school her savings from buying Surf on other household needs; thus the slogan
rivals La Salle and Ateneo conjure strong images – the Green Archers “aims “Wais si Misis.”
high,” while the Blue Eagles “soars,” both connoting the academic and
sports excellence the two schools are known for. Cebu Pacific’s slogan “its Likeable. For a brand element to be likeable, it must be visually or
time every Juan flies” is a witty play of words, which also hihglights the verbally appealing to customers. McDonald’s golden arches, for example,
budget flights for which the airline has become known. And could it be a are recognized throughout the world. In spite of its global appeal, however,
coincidence that a company called Jollibee, whose mascot is a “jolly” bee, it decided to use a shortened version of its brand name in the Philippines –
sells a meal called “Chicken Joy”? the subtle reference to happiness might note how “McDo” has a distinctly Filipino flavor.
be missed, but would definitely enter the subconscious of fun-loving Filipino
customers.

When choosing brand elements, companies must make sure thaht these
elements are memorable, meaningful, and likeable. For certain brands,
Filipinos might respond to humorous elements too.

Memorable. As a general rule, short brand names are easy to recall.

Consider the names of leading laundry detergents such as Tide, Surf, and
Champion. How about coffee places such as Starbucks and Figaro? Even
their competitor Coffee Bean & Tea Leaf is now being marketed through its