Month: April 2016

THE KNOWLEDGE-BASED ECONOMY

THE KNOWLEDGE-BASED ECONOMY

OECD science, technology and industry policies should be formulated to maximise performance and well-being in “knowledge-based economies” – economies which are directly based on the production, distribution and use of knowledge and information. This is reflected in the trend in OECD economies towards growth in high-technology investments, high-technology industries, more highly-skilled labour and associated productivity gains. Although knowledge has long been an important factor in economic growth, economists are now exploring ways to incorporate more directly knowledge and technology in their theories and models. “New growth theory” reflects the attempt to
understand the role of knowledge and technology in driving productivity and economic growth. In this view, investments in research and development, education and training and new managerial work structures are key. In addition to knowledge investments, knowledge distribution through formal and informal networks is essential to economic performance. Knowledge is increasingly being codified and transmitted through computer and communications networks in the emerging “information society”. Also required is tacit knowledge, including the skills to use and adapt codified knowledge, which underlines the importance of continuous learning by individuals and firms. In the knowledge-based economy, innovation is driven by the interaction of producers and users in the exchange of both codified and tacit knowledge; this interactive model has replaced the traditional linear model of innovation. The configuration of national innovation systems, which consist of the flows and relationships among industry, government and academia in the development of science and technology, is an important economic determinant.
Employment in the knowledge-based economy is characterised by increasing demand for more highly-skilled workers. The knowledge-intensive and high-technology parts of OECD economies tend to be the most dynamic in terms of output and employment growth. Changes in technology, and particularly the advent of information technologies, are making educated and skilled labour more valuable, and unskilled labour less so. Government policies will need more stress on upgrading human capital through promoting access to a range of skills, and especially the capacity to learn;
enhancing the knowledge distribution power of the economy through collaborative networks and the diffusion of technology; and providing the enabling conditions for organisational change at the firm level to maximise the benefits of technology for productivity. The science system, essentially public research laboratories and institutes of higher education, carries out key functions in the knowledge-based economy, including knowledge production, transmission and transfer. But the OECD science system is facing the challenge of reconciling its traditional functions of producing new knowledge through basic research and educating new generations of scientists and engineers with its newer role of collaborating with industry in the transfer of knowledge and technology. Research institutes and academia increasingly have industrial partners for financial as well as innovative purposes, but must combine this with their essential role in more generic research and education.

ENTREPRENEURIAL PASSION: THE NATURE OF EMOTIONS IN ENTREPRENEURSHIP

ENTREPRENEURIAL PASSION: THE NATURE OF EMOTIONS IN ENTREPRENEURSHIP

Passion has long been recognized as a central component of entrepreneurial motivation
and success (Bird, 1988; Smilor, 1997). Despite the virtually unchallenged view that passion is important for venture creation and growth, surprising little systematic theoretical or empirical work exists concerning the notion of passion and its influence on entrepreneurial activities (Shane et al., 2003; Baum et al., 2001). The purpose of this paper is two-fold. First, we conduct an extensive review of the literature on passion and entrepreneurship to systematically organize current knowledge and identify theoretical gaps and ambiguities. Second, to address some of these ambiguities and gaps, we develop a conceptual model of emotions and emotional processes within entrepreneurship, placing the role of passion in this broader framework of entrepreneurial emotions. In particular, we draw on the widely studied circumplex model of affect (see Larsen and Diener, 1992; Conte and Plutchik, 1997 for reviews), and an interactionist perspective of
emotional experiences (Russell, 2003). In extending these frameworks to entrepreneurship, we argue that the notion of entrepreneurial passion is grounded in affective states recognized as emotional meta experiences associated with high intensity, and developed primarily through enduring bonds of identification and attachment between entrepreneurs and their ventures. In the full version of this paper, the proposed conceptual model explicates mechanisms that address the why question—why passion matters for entrepreneurial effectiveness. Specifically, we discuss the essential role emotional regulation plays in converting strong affective experiences into drivers of entrepreneurial effectiveness, including persistence, problem-solving, and absorption.

PASSION AND ENTREPRENEURSHIP: A LITERATURE REVIEW
While different researchers have used different, and often non-overlapping, ways of
conceptualizing the notion of passion, four aspects are common to most research: passion 1) is wholly or partly a strong emotion that 2) encapsulates a host of different and mixed emotions, 3) is directed toward or focused around a specific object, and 4) has motivational effect. Despite these convergences, our review identifies several gaps including lack of 1) a clear definition of entrepreneurial passion, 2) a strong theoretical foundation for the disparate conceptualizations of entrepreneurial passion or other emotions, 3) theoretical development for the processes by which entrepreneurial passion is generated, maintained and regulated, and 4) conceptualizing about how passion influences entrepreneurial effectiveness.

Six ways to improve your business budgeting

1. Get your budget out of your head and onto paper:

While many business owners keep themselves going through informal gut-feel budgeting, they don’t realise how hobbled they are. The certainty that comes with a formal budgeting process leads to better and faster decision making, faster growth, and much greater chances of survival.

Informal, intuitive budgeting is possible only when the business is really tiny, and a growth spurt without formal budgets can actually be dangerous when the business finds itself with a big order book but no cash to fulfill its promises. It is better to do adopt formal budgeting no matter how small the business is.

Professionals hired to help you set up your first formal budget and review system is money well spent, especially those with industry expertise who can tell you whether your ratios and forecasts are realistic and in line with businesses similar to yours.

2. Keep the budget alive:

Drawing up a formal budget is only half the job. Putting it away in a drawer is a waste of time and opportunity. A formal annual budget must be reviewed at least once a month against what has been spent and what revenue has come in. It tells you where the business is deviating from the plan, which expenses are creeping up, how the sales function of the business is performing, what needs to be investigated and fixed, what plans need to be made and resources need to be gathered. A budget adjusted monthly in this way becomes an invaluable business management tool – a set of headlights that enables the business owner to drive forward in the dark.

3. Get your cash-flow projections right:

There are many aspects to a proper set of budgets such as sales projections, income-and-expenditure forecasts and capital expenditure plans. They are all important, but mean little if the business does not have the cash to implement them. Your cash-flow forecast can only be accurate if it takes into account how long your debtors are likely to take to pay, and makes provision for the replacement of equipment and the payment of taxes.

Crucially, a sound budgeting process predicts upcoming cash-flow shortages, giving the business owner enough warning to make sure that finance is ready to bridge the shortfalls.

It is much easier to convince financiers to give you finance if they can see that you are proactive and can see shortfalls coming through sound budgeting processes.

4. Set a challenging budget, but keep it realistic:

A business won’t thrive if its sales targets are not aspirational, so it is good to build in some growth into your forecasts. Very often, though, business owners are much too optimistic, and end up with substantially less revenue than they predicted. Forecast for growth, but keep it realistic. An industry expert can be very helpful to benchmark your figures with what can realistically be expected in your sector.

5. Understand the macro environment in which your business operates:

In today’s global economy, what happens in China or the US will have an influence on your business. In South Africa, a basic budget line item like fuel is directly linked to macro factors like the world oil price and the strength of the rand. Businesses that rely on imported materials, for example, need to have plans in place when to absorb exchange-rate fluctuations, when to pass it on to their clients and even when to start sourcing locally rather than importing. A good budget is plugged into the macro environment.

6. Understand the difference between fixed and variable costs:

Fixed costs are those that stay the same no matter how many sales are made by a business in a month, such as rent, salaries and loan repayments. Variable costs, as the name implies, vary as the level of sales vary. These include raw materials and commissions. Failure to understand this simple difference means that a business owner is not able to use crucial business management tools such as gross profit ratios and break-even analysis.

Good budgeting is not rocket science. You do not have to be an accountant to understand and use a budgeting system in your business. It is a habit that allows business owners to grow their businesses in good years, and to survive the bad ones.