Starting Your Own Consulting Business by hey11325

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									                                    Module 1


          CONSULT IN EUROPE - LDV project n. 2006 FR/06/B/P/PP-152533

This project has been funded with support from European Commission. This publication
reflects the views only of the authors, and the Commission cannot be held responsible for any
use which may be made of the information contained therein.


The aim of this course is to encourage you to think carefully before starting entering the
consulting business or starting your own consulting business. This module explores what is
meant by consulting services, and presents the importance of understanding your
consulting environment. The module also focuses on the tools for analysing the external
environment and the market, and looks for ways to improve your competences in decision
making and in managing teams of consultants.


After studying this module you should be able to:
    explain the importance of vision, mission and values for a consulting organisation
    describe what is meant by consulting services and the role of external consultant
    realise the importance of the stakeholders analysis for the consulting services
    understand why business planning is important
    use several frameworks for external environment and market analysis

Activity 1

What do you understand by ―consulting‖? Are you attracted by consulting? Why?



Management consulting refers to both the practice of helping companies to improve
performance through analysis of existing business problems and development of future
plans, as well as to the industry composed of firms that specialize in this sort of consulting.
The dictionary defines a consultant as ―an expert in a particular field who works as an
advisor either to a company or to another individual‖ or ―a person who knows a lot about a
particular subject and is employed to give advice about it to other people‖.

The most popular consulting businesses include: accounting, auditing, business, career,
communication and PR, IT, managing performance, HR, insurance and marketing.
Management consulting may involve the identification and cross-fertilization of best
practices, analytical techniques, change management and coaching skills, technology
implementations, strategy development, or operational improvement.

Consulting is a service business, which means that:
   the deliverable is somewhat intangible (there may be tangible components such as

      it is difficult to standardize;
      the person providing the service plays an important role in the success of the

There will always be lots of opportunities for helping clients, but ensuring these clients are
willing to pay is critical. While some individuals believe that giving away services is a way to
establish a client base and get started, you are devaluing your services by not charging for
them. Free consulting generates lots of demand for … more free consulting!!


Consultants may work within firms that specialise in consulting or may be part of larger
organisations that offer wider services such as accountancy, audit, and IT
development. Business support professionals, who provide advice through government-
funded initiatives, utilise consulting skills by delivering knowledge, expertise and guidance
mainly to start-ups and SMEs. According to the Institute of Business Consulting: ―Business
consulting involves individuals, whether self-employed or employed, individually or
collectively using their knowledge, experience and analytical and/or problem-solving skills
to add value into a wide variety of organisations, and therefore to the economy as a whole,
within a framework of appropriate and relevant professional standards, disciplines and

A consultant is a professional who sells his expertise in a specific area (or areas) to clients,
providing them with assessments on their practices, helping them identify problems and
solutions, and advising them on possible courses of action. Consultants act most
commonly as advisers, but they may also be employed to address any other type of
situation where their specific experience and knowledge is required. For instance, a
consultant could be asked to implement his or her recommendations, provide training
sessions on his or her area of expertise, take part in the planning of a corporation's
strategy, design promotional material, evaluate bookkeeping methods, etc.

Consultants can work:
   for large consulting firms;
   for small specialized firms;
   as independent contractors/freelancers;
   as contractors working within an organization where some form of
     employer/employee relationship already exists (this depends on the statutes and
     regulations of the organization, as well as its needs).


Business, government, and non-profit organizations hire consultants for their expertise, and
to help them identify, analyze, and solve problems. Consultants offer an 'outsiders'

unbiased perspective, and allow other employees to carry on with daily business. In
general, consultants are hired to:
    conduct research, analyze and summarize data, predict trends;
    create or improve designs and processes; recommend changes;
    evaluate designs and processes, communicate ideas, or motivate employees;
    identify ways to save money, or to obtain funding or financing.



Management consulting grew with the rise of management as a specialised field of study.
The first management consulting firm was Arthur D. Little, founded in 1886 by the MIT
professor of the same name. Though Arthur D. Little later became a general management
consultancy, it originally specialized in technical research. Booz Allen Hamilton was
founded in 1914 by Edwin G. Booz as a management consultancy and the first to serve
both industry and government clients. The first pure management and strategy consulting
company was McKinsey & Company. McKinsey was founded in Chicago during 1926 by
James O. McKinsey, a professor at the University of Chicago, Graduate School of
Business. However, the modern McKinsey was shaped by Marvin Bower, who believed that
management consultancies should adhere to the same high professional standards as
lawyers and doctors. McKinsey is credited with being the first to hire newly minted MBAs
from top schools to staff its projects instead of hiring older industry experts. Andrew T.
Kearney, an original McKinsey partner, broke off and started A.T. Kearney in 1937. During
Britain's war effort, Personnel Administration (PA) was founded in 1943 by three
Englishmen: Ernest E. Butten, Tom H. Kirkham and Dr. David Seymour.

After World War II, a number of new management consulting firms formed, most notably
Boston Consulting Group, founded in 1963, which brought a rigorous analytical approach to
the study of management and strategy. Work done at Booz Allen, McKinsey, BCG, and the
Harvard Business School during the 1960s and 70s developed the tools and approaches
that would define the new field of strategic management, setting the groundwork for many
consulting firms to follow. Also significant was the development of consulting arms by both
accounting firms (such as Accenture of the now defunct Arthur Andersen) and global IT
services companies (such as IBM Global Services, which acquired PwC Consulting).

One of the reasons why management consulting grew first in the USA is because of deep
cultural factors: it was accepted here, (contrary to say, Europe), that management and
boards alike might not be competent in all circumstances; therefore, buying external
competency was seen as a normal way to solve a business problem. This is referred to as
a "contractual" relation to management. By contrast, in Europe, management is connected
with emotional and cultural dimensions, where the manager is bound to be competent at all
times. This is referred to as the "pater familias" pattern. Therefore seeking (and paying for)
external advice was seen as inappropriate. Conversely it must also be said that in those

days (and still today) the average level of education of the executives was significantly
lower in the USA than in Europe, where managers were "Grandes Ecoles" graduates
(France) or "Doktor" (Germany). The combination of these two factors made it difficult for
consulting to emerge in Europe. It was only after World War II that management consulting
emerged in Europe.

The current trend in the market is a clear segmentation of management consulting firms.
McKinsey, Bain, and BCG retain their strong strategy focus, while many other generalist
management consultancies such as Accenture and Capgemini are broadening their
offering increasing into high volume, lower margin work such as system integration.
Management consulting has grown quickly, with growth rates of the industry exceeding
20% in the 1980s and 1990s. As a business service, consulting remains highly cyclical and
linked to overall economic conditions. The consulting industry shrank during the 2001-2003
period, but had been experiencing slowly increasing growth since. In 2004, revenues were
up 3% over the previous year, yielding a market size of just under $125 billion.

Currently, there are four main types of consulting firms. First, there are large, diversified
organizations, such as Accenture, BearingPoint, Capgemini, Deloitte and IBM Global
Services that offer a range of services, including information technology consulting, in
addition to a strategy consulting practice. Second, are the medium-sized information
technology consultancies, such as Hitachi Consulting, that blend boutique style with some
of the same services and technologies bigger players offer their clients. Third, are the large
management and strategic consulting specialists that offer only strategy consulting but are
not specialized in any specific industry, such as Arthur D. Little, A.T. Kearney, Bain &
Company, Boston Consulting Group, and McKinsey & Company. Finally, there are boutique
firms, often quite small, which have focused areas of consulting expertise in specific
industries or technologies. For instance, Roland Berger is well-known in Europe for its skills
in downsizing and cost-killing, while Monitor Group is focused on the pharma industry and
assistance to developing countries' governments. Most of the boutiques were founded by
famous business theorists.

A fifth type of global consulting firm is emerging. Sourcing Advisory services deal with
choices between insourcing and outsourcing, vendor selection, and contract negotiations.
The top 10 sourcing advisors (as ranked by the Black Book of Outsourcing) were Alsbridge,
TPI, EquaTerra, NeoIT, Pace Harmon, PA Consulting, RampRate, Deloitte, Gartner, and
Everest. Although a fast growing sector, the largest sourcing advisory practices would likely
be classified as boutiques when considering the management consulting industry as a
whole - with one of the largest players, TPI, for example, citing 2006 revenues of less than
US$150M during its acquisition by ISG.


The European Federation of Management Consultancies Associations - FEACO was
formed in 1960 in Paris by the Dutch, French, German, Swedish and Swiss association.

The Italian association joined closely after, followed by the associations of Austria, Belgium,
Denmark, Finland, Norway and Spain, and finally the associations of Greece and Cyprus.
As of 1991, Central and Eastern European associations started to join beginning with
Poland, Hungary and the Czech Republic, followed by Slovenia, Romania and Bulgaria, as
well as Cyprus. The associations of Bosnia-Herzegovina and Croatia joined only recently.
The Federation has set out guidelines for professional and ethical conduct for the industry.

In January 1991, FEACO established its operational office in Brussels to develop its
relations with international institutions and the European Union, in order to directly defend
the interests of management consultants in issues of importance to the industry. FEACO
member associations now represent more than 3,500 management consultancy practices,
of all sizes.

A report by FEACO issued in 2007 revealed that the size of the European Management
Consulting Market was worth an estimated 74 billion Euro. This figure represents an
average weighted increase of 10.7 % since 2006. The new market definition which FEACO
introduced in 2006 allows viewing the European MC Market from two perspectives: total
sales or turnover from Consulting services only. Both analyses identify Germany as the
largest market and the UK as the second market for consulting in Europe. France or Spain,
which each represent about one third of one of these markets, ranks third, depending on
the criterion used. Turnover from Consulting is higher in France than in Spain, whereas the
total sales in Spain are higher than those in France. Management Consulting now
contributes 0.62% to European GDP. Most countries reported a steady growth of the MC
market. Several countries reported double digit growth. Expectations for 2007 are even
higher. The general trend is positive and optimistic. Only Portugal reported a market
decline, but expects growth for 2007.

Consulting services (Business consulting and IT Consulting) accounted for 56% of the total
turnover, Outsourcing for 19% and Development and Systems Integration for 19%. Within
Business Consulting, the top two service lines are Organization/Operation Management
(OM) and Strategy (SC). Economic growth and stability were the main drivers for demand,
as well as the realisation by European companies that, to be competitive in the European
or the global market, they need to invest and develop. Other drivers were the increased
export to Eastern European countries, particularly for the bordering countries, and the
accession to the EU, for those who joined recently. The Industry, banking and public sector
remain the driving sectors in most Eastern and Western European countries alike,
accounting for 70% of the total turnover. Experience, quality, professionalism and ethics
are key elements for choosing a consultancy. There is a clear trend towards investment in
new projects and more long-term projects. The steady growth in demand is causing a 'war
for talent' on the market.



When you become a consultant, you're saying goodbye to the predictability, commonness,
routine and safety of a regular job. You're venturing out on your own, into unknown territory.
From here on out, you'll need to survive by your intelligence, not a pay check that appears
every two weeks without question. The hours may be long and the pay may be inadequate
as you start out.

Activity 2

What would be the advantages and disadvantages of becoming a consultant?

But, in the long term, your decision to become a consultant may be the best thing for you.
You'll call the shots (well, except when your clients do). You'll be in charge of scheduling
your time. You can refuse projects, dump clients, and focus on work that interests you. You
set your rates. Moreover, you can become a consultant without spending much money.
Often, all it takes to become a consultant - at least on paper - are a computer, business
cards, a telephone and an Internet connection. Of course, to truly become a consultant,
you'll need clients, expertise, experience and other important pieces of the puzzle.

According to research from Harvard Business School, the business consulting industry
generates about $100 billion in annual revenues from U.S. consultants. Especially in a slow
economy, companies need business consultants to help them increase revenues and cut
costs. It is no wonder business consultants are among the most highly paid professionals.
A recent survey by the Association of Management Consulting Firms found entry-level
consultants earn an average of $65,000 annually while senior partners earn an average of
over $300,000 (including bonuses and profit sharing). Self-employed business consultants
may earn $35 to $400 per hour depending on their market.

When considering starting your own consulting business, it is important to have a clear
understanding of:
    the precise nature of your work
    your contractual and commercial relationship with your clients
    how you will be perceived in the marketplace depending on how you choose to
      position yourself.

If you want to establish yourself as an independent contractor or a contractor working within
an organization where some form of employer/employee relationship already exists, it is
important to remember that owning your own consulting business is precisely that, owning
a business. This means you will need to go through the same start-up processes that any
other entrepreneur must go through: business registration, acquiring a business number,
dealing with business taxes, etc.

Activity 3

List the competences needed by a person for becoming a consultant. Why do you think that

they are important for a consultant? How many of them (as percentage) do you have at this
moment? How do you intend to develop the competences that you don‘t have yet? How
long do you estimate that will take to develop those competences?


When you become a consultant, you take the leap from employee to entrepreneur. You are
starting a real business which requires a complex blend of:
    expertise – your unique skills are your business's products;
    knowledge in business and management practises including accounting, selling,
       organizational and time-management skills;
    self-awareness, inner drive, perseverance, confidence, and the ability and
       willingness to work independently for long hours, often sacrificing personal time;
    people skills, in order to establish, expand, and sustain client relationships. You
       must be able to gain a thorough understanding of a client's needs by being sensitive,
       perceptive, and an attentive listener to what is said and not said during discussions.
       You must then establish trust by following through on all commitments with
       exceptional, quality work, in an atmosphere of confidentiality.

Box 1: Things to consider before you become a consultant

Values – it is very important to have solid values not only in relationship with my clients, but also with
yourself. The consultant must be ethical and responsible, and he/she must breathe and express his/her
values in everything he/she does.

Objectives – you must set up clear objectives on what you intend to do, and where you intend to go.

Knowledge and competences – if you want to become a consultant in one area of activity or another, make
sure that you are experienced in that area and you are up-to-date with all the trends and changes in that
specific industry.

Certifications and licences – you may need a special certification or a special licence before you begin to
operate as a consultant.

There is no predetermined age at which the door to a career in consulting is magically unlocked. Some would
say a minimum age would be somewhere between 30 and 35 years old assuming that from age eighteen
onwards you had achieved a number of prerequisites which might include some or all of the following:
     University degree
     Professional training and qualification
     An MBA
     Significant periods of employment with credible organizations in the industry or profession in which
        you intend to practice as a consultant.

Family Considerations
Often Consultants need to work away from home and this may cause problems and tensions if you are
required to be at home during the evenings to deal with family commitments and discharge your
responsibilities. Conversely, consultants may need time to work in a quiet environment in a home based
office; your domestic and residential arrangements may not be favourable.

Financial Considerations
Before you start a consulting business, or any business for that matter, you need to fully understand the
financial implications. You need a basic cash flow projection that will show clearly how you will bridge from
your current situation, perhaps earning a regular salary from an employment to generating and banking fees
as a self-employed consultant. The smart move is to ensure that before you start your business you have
sufficient cash reserves to pay essential bills for a period of time, perhaps twelve or eighteen months.

Time management – you need to be or to become a much organised person before starting to get involved
in consulting. Most of your clients will complain of the lack of time for doing various activities, especially social
or family activities. You will not be credible in someone‘s eyes unless you prove him/her that you are
managing your time very well and that you are rigorously planning your activities.

Socialising – is critical for the success of any consultant. Knowing to establish fast and long-term relations
with other people, building mutual trust and networking are key factors in consulting.

Box 2: Is becoming a consultant the right choice for me?

Are you comfortable being in control of and responsible for running all aspects of a business? When you get
involved in the consulting business you will be in the captain‘s chair of the entire enterprise, as well as
simultaneously being your own secretary (at least in the beginning). Are you prepared to write your own
schedule? Do you have the desire and the means to be responsible for your own time management? Are you
prepared to market yourself and network within the professional community to secure contracts for your
blooming business? Are you prepared to do whatever it takes, be it a 12 hour day of cold calls when business
is slow or putting in the extra time to seek out individual clients on a one-to-one basis? If you can answer yes
to all these questions, then you are might be just the type who will greatly succeed in the type of business

There are many items to consider before deciding to make the commitment of becoming a
consultant. Starting a consultancy is starting YOUR OWN BUSINESS. Although it is
common for consultants to function under the umbrella of a larger corporation, such
participation is typically in a freelance capacity and consultants don‘t always enjoy many of
the benefits that their colleagues within the corporate hierarchy do. This is not to say that a
career in consultancy does not have its own set of desirable characteristics, but simply that
it is good to be aware that there exist profound differences at a fundamental level regarding
the disciplines necessary to be successful at a consultancy as opposed to achieving while
inside the comparatively rigid corporate structure. Although starting a business offers many
advantages, it is a good idea to be aware of the drawbacks and take steps to minimise their
effects on your business. Easy money isn't easy. You must earn it. Facing unfathomable
challenges and entering unchartered territory are part and parcel of entrepreneurship.
Think hard before you take the plunge.

Box 3: Starting a consulting business
                     Advantages                                                Disadvantages
    Be your own boss! Make your own decisions                     Face being lonely and isolated, especially as
       and work at your own pace. Nobody will be                    a sole trader working from home.
       telling you what to do or expecting you to be               Be unable to blame others, instead having to
       in at a certain time. There's no reporting to                carry responsibility for your own mistakes.
       someone else (except for your clients).                     Be under pressure of the financial risk that
    Take credit for each success and be proud of                   comes with no regular income or security.
       your achievements.                                          Need to be heavily committed, which could

      Develop a particular skill you've always been            put a strain on relationships with family and
       keen to improve.                                         friends.
      Get rid of petty office politics and related            Rely on yourself, your skills, your staff, your
       nonsense forever.                                        suppliers and many others who could let you
      Potentially remove your earnings barriers.               down.
       The sky is the limit.                                   Probably work very long hours.
      No more commuting or traffic jams (if you set           Have no colleagues or managers to ask for
       up from home).                                           advice (although these can be replaced by
      Improve your self-fulfilment through greater             mentors, advisors and 'network' colleagues).
       job satisfaction and improved confidence in             Have to forfeit holidays for a while as there
       your abilities.                                          may be little opportunity or available funds.
      Being your own boss allows an incredible                Have no sick pay, so will either need to
       amount of flexibility and freedom. You'll be             soldier on regardless or not get paid while
       able to plan your own working day and take               you're recuperating.
       time off without asking the boss.                       Have your family/social life disrupted.
      Flexibility to work where, when and with the            Probably suffer from higher stress levels
       clients you choose                                       which could affect your health.
      You set the quality standards and deliver               Have to constantly multi-task and meet
       projects to your own high standard                       customer deadlines, satisfy others and still
      Have the opportunity to become an                        rely on others (suppliers, partners) to deliver.
       employer.                                               Redundancy may force you to actively
      Improve your confidence. If you can run your             consider the option to start your own
       own business, you can set your mind to                   consulting business.
       achieve anything.
      You can build a business in which you own
       100% of the equity.

Activity 4

Imagine yourself and your working life two short years from now. What would be different if
you decide now to start your own consulting business?


Once you decided that a career in consulting is right for you, there are a few things you can
take care of from the get go to ensure a smooth transition into the world of professional
consultancy. Like we mentioned earlier, organization plays a key role in all phases of a
consultant‘s career. From the early stages of planning the business structure and types
consulting you wish to engage in, to the execution of daily workflow, to the discipline
required to keep legally sound income and tax records, being a consultant can mean being
efficient and thorough in the areas of organization and planning. Whenever possible, it is
recommended to plan as far ahead as possible for matters that can be planned ahead for.


It is in your best interest to formalize and solidify your business structure right from the
onset. This is in the interest of having a well thought out plan both legally and for tax
purposes. In a nutshell, the three basic ways you can set up your business from a legal
standpoint are:
     1. Sole proprietorship/Sole trader: This is the easiest to accomplish from a legal
         point and requires the least investment of time and funds to do. However, it should
         be noted, that sole proprietors accept all business related liabilities at a personal
         level. In this case according to law, the individual and the business are for all intents
         and purposes the same entity. So, for example, if in the course of your business
         dealings you come under legal scrutiny for any reason (being sued by a client, for
         instance), resulting litigation may be able to hold your personal finances and assets
         as damages to the petitioner in the case.
     2. Partnership: This approach is similar to sole proprietorship, but involves two
         individuals who share legal and fiscal responsibility for the business together. This
         partnership can be instituted in a variety of ways and typically involves the interested
         parties negotiating a contract that elaborates legally on the particulars of the
         partnership ―deal‖.
     3. Company/Corporation: A company is the most legally and fiscally complicated
         method of starting a business, but has its benefits as well. When a business is
         incorporated it becomes a legal entity of its own. Incorporation allows for businesses
         to take greater strategic risks than sole proprietorships and partnerships because
         they provide for a legal and fiscal layer between the corporate entity and the
         individuals involved in the business. Under normal circumstances, someone starting
         out in the consulting world will not have the need or the resources to incorporate, but
         it is common for large consulting firms to establish their business in this manner.


It is crucial to have a sound business plan from the very beginning of your consulting
endeavour. A good rule of thumb is: if you can plan for it ahead of time, by all means do so.

Why Write a Business Plan?
It's easier to be passionate about the future if you can see where you are going and how
you are going to get there. Everybody needs a map, direction, a guide to help them get to
where they are going. Your business is simply too important to leave to chance, just like
your life. Be realistic when writing your business plan, because over-zealous projections
can create problems later on and can damage credibility to those who can see through the
generous forecasts.

What to Include In Your Business Plan
Your business plan needn't be packed with detail. You can elaborate in your marketing and
operations plans. The business plan should be fairly short and concise. Include the
following content:

1. Name, address and contact details of the business along with the business status
(i.e. sole trader, partnership, limited company, franchise, etc.).

2. Contents page with page and section numbers.

3. An executive summary which defines your entire business proposal and details the key
points, including the objectives and purpose of the business plan.

4. Business and products - what progress do you perceive will be made once launched,
and in which markets? Talk briefly about ownership and describe the product or service.

5. The market and competition - explain which markets you will sell in and segment the
market into groups that you will compete in.

6. Marketing and sales - outline how you intend to reach your target markets and give
details of price, product and positioning.

7. Management and personnel - detail the proposed or existing management team
structure and list management members' expertise. Outline any areas of weakness that
could be improved, plus how they might be improved.

8. Operations - describe assets and premises that you have or intend to purchase.

9. Financial performance - include your financial forecasts and estimates of what you will
be likely to pay out and receive for the first year.

10. SWOT analysis - create a one-page analysis of the strengths, weaknesses,
opportunities and threats for your business.

11. Visualise the future for your business and what you want to achieve. Then create
objectives, tasks and actions. Refer back to your written goals.

12. Include an appendix to add more detailed information, such as market research,
company or product literature.


The best way to quantify your business objectives is through a mission statement. The
mission statement will detail the whole point of your business. In many ways this is the
hardest part of your business strategy to write because it must outline succinctly the whole
thrust of your business. The mission statement is also the most misunderstood part of the
business planning process. Many people think that it should be couched in eloquent
language and be full of lofty ideas for the business. All too often it becomes pompous, with
little meaning and purpose because it is largely incomprehensible to those who read it.

The Three Key Components of a Mission Statement:
    The role or contribution that the business makes - is it a voluntary organisation or
      a charity? Are you in business to supply goods and services and make a profit?
    A definition of the business - this should be given in terms of the benefits you
      provide or the needs that you satisfy. It should not define what you do or what you
      make. These should have been outlined as part of the first component.
    An outline of your distinctive competencies - the factors that differentiate your
      business from the competition. These will be the skills or capabilities you offer that
      are not, or cannot be, offered by your competitors.

A Good Mission Statement
A good mission statement is written in two parts. In the first part you outline the industry
that you are in and the products that you offer. In simple clear terms, this will relate to
exactly what your business does. The second part comprises the business strategies that
you follow to achieve success. These can take any number of different forms, and some
basic examples could include:
    We will provide an excellent service to all customers to achieve total satisfaction.
    We will accomplish high productivity levels through sound planning, organisation and
    We will earn sufficient profits to ensure investment in new technology together with
       providing a good return to shareholders.
    We will earn high employee loyalty and motivation by showing respect for their
       capabilities and providing future training and development opportunities.
    We will gain recognition in the market for being a highly professional, ethical, quality-
       assured business.

The vision
Perhaps the most important factor in successful marketing is the `corporate vision'.
Surprisingly, it is largely neglected by marketing textbook. Theodore Levitt said: "Nothing
drives progress like the imagination. The idea precedes the deed‖.
If the organization in general, and its chief executive in particular, has a strong vision of
where its future lies, then there is a good chance that the organization will achieve a strong
position in its markets (and attain that future). This will be not least because its strategies
will be consistent; and will be supported by its staff at all levels.
What a worthwhile vision consists of is, however, usually open to debate; hence the reason
why such visions tend to be associated with strong, charismatic leaders. But the vision
must be relevant. The message for the marketer is that, to be most effective, the marketing
strategies must be converted into a powerful long-term vision; if such a vision does not
already exist. The Vision presents indications for the future - what the business will
do. What it might do in the future and what it will never do.

Box 4: Top 10 Starting Up Tips

   1. Involve your family
      If you have a husband or wife or children, involving them in the decision to go it alone is important.
      Your home atmosphere should be very supportive, particularly in the early stages. Your family could
      also be useful as a sounding board, helping out with the odd task or providing feedback or finance.
   2. Analyse your personality

         You need to ask yourself if you are the right person to start a business. Compile a checklist with the
         help of the following questions: Can you work long hours? Can you take criticism? Will you be able to
         cope with financial insecurity? If your business struggled in the early stages, would you continue?
         Write down the reasons why you are starting a business.
   3.    Make sure your product is a must-have not a nice-have
         Once you‘ve got an idea you need to know that people will need it enough to want to buy it. Many
         people opt to begin a business by using a skill that they have acquired in their spare time as a hobby.
   4.    Your idea doesn’t have to be new
         Trying to sell a product that is new can be an uphill struggle. Being first is not always best, as you
         have to educate a market and convince them of the need for your product. So don‘t be put off if your
         idea has been done before – think about how you can do it differently, by including an additional
         feature or benefit.
   5.    Know your market better than your competitors
         Carry out as much market research as possible. Find out about your market place, concentrating on
         areas such as the demand, your competitors and the size of the market. Talk to potential customers,
         suppliers, competitors, distributors and ex-employees of competitors.
   6.    Pilot your idea out
         Everyone has different motivations for starting a business, and you can test your idea out without
         risking everything. You can carry on earning money from your job while you are starting up. Use your
         spare time to carry out your market research.
   7.    Be honest about your weaknesses
         Identify what you do well and what you do badly, dividing it into areas such as financial, marketing,
         operational and general management. Be honest with yourself, but also be realistic. Try and get
         someone else to evaluate your answers – another person‘s perspective can be very valuable.
         Identifying your weakness will help you to recognise what you are good at, and which areas you will
         need to find someone who can do a better job than you.
   8.    Get a good mentor on board
         Remember – two heads are better than one. Seek out the advice of a family friend who has the
         experience of being in business, or someone who is recommended to you, or someone you are close
         to. Consider giving them a share of the profits or equity in your company in return for advice.
   9.    Justify every assumption in your business plan
         But remember that whatever you write down is not set in stone. Your business plan should have
         longer-term objectives, estimates and forecasts – try to make as many of your goals as possible
         measurable. The two most important reasons for having a plan are to show to outsiders if you need to
         raise money, and to help you keep your business on a planned course, so you can spot when things
         are not going to plan.
   10.   Keep it your business plan succinct
         An ideal format for your plan, if you intend it to be for outside use, is to have between three and ten
         pages of text that draw out the important points, plus a series of financial figures. Excessive detail
         should be confined to appendices.


There are three ways in which YOU can start your own business:

Starting from Scratch
Starting your own business from scratch is undoubtedly the riskiest way of starting a
business. However, it can also be the most satisfying. To stand the greatest chance of
survival it is essential that you undertake substantial research into the market and, more
importantly, research the market on an ongoing basis to stay ahead of the competition. You
must also start small. Many small business start-ups suffer from delusions of grandeur and

spend money on totally unnecessary items. Only start your own business in an area in
which you have some expertise or knowledge. Remember, whatever sort of business you
establish you are going to come up against competition. Unless your business expertise
and knowledge is at least on a par with those competitors you will be starting at a

Buying a Franchised Business
As an alternative to starting your own business from scratch consider buying a franchise. A
franchise is a business that has already been tested in the market and proven to be a
success. Remember, however, that it is the concept itself that has been proven and that
alone will not guarantee success for you. Franchising is really an informal partnership. The
franchisor will want to ensure that your business is launched successfully and that it
remains profitable. Their income as well as yours will depend on your success. This creates
a bond between the two parties in terms of a close dependence on each other. Buying a
franchise will allow you to run your own business, but unlike a new start-up business you
will have the ongoing help and assistance from the franchisor to make it a success.

Buying an Existing Business
You may consider that buying an established business might be the easiest and safest way
of running your own business. This may not necessarily be the case. There are all sorts of
pitfalls that you could encounter. The first will probably be actually reaching agreement on
what the value of the business is and how much the purchase price should be. You may
also need to investigate thoroughly the reasons for the business being put up for sale. If it
is making money and is profitable why should the existing owner wish to sell? Even if the
reason is a good one, for example, the retirement of the existing owner, you will often find
that their value of the business is overstated on a true commercial basis. Some businesses
are also built around the reputation of the owner so you will need to consider what will
happen when they leave. Will the existing customer base transfer their loyalty to you as the
new owner or will they now go elsewhere? Buying an existing business is a risky thing so
professional help is an absolute necessity before you make any commitment.

Box 5: Starting a Small Business - Do's & Don'ts
                      Top Ten Do's                                         Top Ten Don'ts
1. Live frugally to build a start-up nest egg.        1. Don't quit your job until you are certain you can go
2. Be sure your intended business has long-term       it alone.
economic potential.                                   2. Don't be impatient in selecting a business.
3. Aim to become a specialist.                        3. Don't sign a lease or franchise agreement without
4. Work first for someone else in your intended       a lawyer.
business.                                             4. Don't seek out a too highly challenging business;
5. Adapt to your local market and tastes.             wait for the fat pitch.
6. Prepare a business plan before you start.          5. Don't skimp on insurance coverage.
7. Learn computer and e-commerce skills before you    6. Don't be better at opening stores than operating
start.                                                them.
8. Have a lawyer and accountant before you start.     7. Don't overlook adequate employee training and
9. Know how to keep score: learn accounting.          motivating.
10. Prepare frequent cash flow projections.           8. Don't let anyone sign your cheques.
                                                      9. Don't let anyone sign purchase orders.
                                                      10. Don't hesitate to promptly cut costs in business


Raising finance for your company should not be difficult provided you have an existing
profitable business or you have an idea for a new business that is feasible. Both of these
aspects are important. If a lender is to finance your business they must be sure that you
can meet the repayments. They are in business to lend money and make a profit.

Raising the right type of finance for your business is also important. There is little point in
borrowing money on a short-term basis if you can only repay it over the long term. This is a
common mistake that small businesses make. They utilise short-term finance, for example
a bank overdraft, to finance long-term expenditure such as the purchase of a new vehicle.
This then leads to a reduction in short-term finance for working capital which could, in some
circumstances, lead to business failure. You must match the type of finance to the type of

Your bank will probably be your first option to gain finance for your business, but we will
also look at other alternatives in order that you can gain an overall picture of what may be

Tip: Never accept the first offer of finance - finance providers are in a very competitive
market and if you have a good proposition you should always seek alternative quotations


Before you can even consider raising funds from external sources you must make your own
investment. This investment takes two main forms:
   1. Financial Investment, as the name suggests, is a direct injection of cash into your
      business. If you are operating as a limited liability company, this could take the form
      of share capital or director's loan. If you operate either as a sole trader or
      partnership, it will be classified as owner's or partner's capital. The decision as to
      which type of business to operate can be complex. There are advantages and
      disadvantages to operating as a sole trader or as a partnership, or as a limited
      liability company. From the outset you need to seek professional advice on this

   2. Non-Financial Investment is the introduction of assets that you may already own,
      such as motor vehicles and tools and equipment. These need to be carefully valued
      for inclusion in your financial records. If you are introducing assets into your
      business in this way you are advised to seek the help of an accountant. This will
      ensure that your assets are correctly valued and that they comply with the country


Quite obviously short-term funding is designed to be used and repaid in the short term. This
is often referred to as working capital finance. It is used to finance working capital and pay
creditors and is then itself repaid following receipt of funds from debtors. The most common
form of short-term finance is provided by banks in the form of an overdraft.

Whilst overdrafts may be the most common form of short-term finance they are also
probably the most abused. They are often used for purchasing assets for which long-term
finance should have been obtained. An overdraft is a revolving form of credit up to an
agreed limit. This limit is agreed in advance and is then available for use, usually for a
defined period normally ranging from a few months up to one year. You are then free to
draw on that facility as and when required. Overdrafts do not have any defined repayment
date, although the bank will normally insist when granting the facility that it is repayable in
full on demand. This does, of course, mean that it can be taken away just as quickly as it
can be granted.

Trade Credit
Obtaining credit from your suppliers is also another easy form of short-term finance. It can
also be the cheapest form of finance. You are, effectively, using other people's money to
finance your business although no interest or other charges are payable. The terms of such
credit can vary widely from a few weeks up to many months and will depend, in many
cases, upon the particular type of business that you operate.

Having gained agreement to a credit account it is extremely important that you do not
abuse that facility. It can just as easily be withdrawn, placing severe pressure on your cash
flow. Always adhere to the agreed terms of the credit and make payment promptly when it
is required. Failure to pay on time could also render you liable to penalties. Bearing in mind
the considerable statutory interest rate, the charges involved could represent a substantial
amount and are therefore something that you should avoid at all costs. Of course, if your
creditors start to charge you on this basis it is also likely that they will have already
withdrawn your credit facility. Trade credit is not something that is only available to
established businesses. In these times of intense competition, suppliers need to be flexible
in how they make their sales. Do not be put off by an initial refusal. Try another supplier
and you may get a different answer.


If you are considering purchasing any form of fixed asset, for example, buildings or
vehicles, you must obtain long-term finance. In addition, it is prudent to obtain that finance
on repayment terms linked to the likely life of the asset. For example, if you are purchasing
an asset with a working life of three years, it would be prudent to repay the necessary
finance over the same term. In most cases the lender will indeed insist upon this. It would

be futile for them to lend you money over ten years for an asset that will only last for three

Business loans are available from a wide variety of sources and on a wide range of terms
and conditions. Some are secured on assets of one kind or another and some are available
on an unsecured basis. As with all forms of finance, you need to know and understand the
exact conditions under which the loan is being made available. One thing to look out for is
early repayment penalties. Even if you do have the means to repay the loan early it could
cost you extra in terms of a fee or penalty interest. Most loans are covered by the various
consumer credit legislation.

The majority of business loans are provided by banks. Repayment terms are also flexible,
depending upon the purpose of the loan and can range from a 12-month period up to 20
years. In some circumstances it is also possible to arrange a capital repayment holiday
where only the interest needs to be repaid for the defined term of the holiday. This can be
advantageous for a new business in that it keeps expenditure down to a minimum whilst
income is being built up from trade. This type of deferred repayment should be available
regardless of whether you opt for a variable rate or a fixed rate loan.

Variable Rate Loans
Variable rate loans are entirely flexible but you need to be aware that this can actually
cause you problems if the base lending rate increases. The bank will usually review your
outstanding loan on an annual basis and if the base rate has increased substantially during
the past 12 months this can also lead to a substantial increase in your repayments. On the
other hand, the bank may be willing to extend the repayment time-scale to allow you
additional time to pay off the loan. Either way your costs have increased and this can only
come out of your business profits. It can also make budgeting very difficult.

Fixed Rate Loans
Fixed rate loans have three specific features which are designed to take away the
uncertainty of using a variable rate loan:
    The interest rate for the entire period of the loan is fixed from the outset.
    The monthly repayments are fixed for the full term of the loan.
    The full term of the loan is also fixed.
This means that you know from the outset exactly how much your repayments will be each
month and how long the loan will take to repay. This cannot vary throughout the entire
period of the loan. As you might expect, however, there can be a financial cost for this
certainty. It is likely that the interest rate that you will be offered will be higher than a
comparative interest rate for a variable rate loan. By offering the fixed rate the bank has to
make assumptions about how the base rate is likely to move in the future. In effect this
additional cost is the premium that you have to pay to ensure financial stability.

Opening a Small Business Bank Account
You will need a business bank account. Before you open one, compare them and see
which offers suit you best, and which charges are the most competitive. Choose wisely and

you could save yourself a lot of money and hassle later on. You may already have a good
relationship with your existing bank, and they may offer a good small business banking
service. It is still worth checking out the alternatives.

Box 7: Checking out the banks
             Questions to Ask Banks                             Questions to Ask Yourself
                 when Comparing
    What is their charging period (monthly or             Will you be making many deposits or
       quarterly)?                                          withdrawals each month?
    What are their standing charges?                      How will you transact: over the phone, online,
    Do they provide interest if in credit?                 or at your local branch?
    Do they offer a cheque card and/or debit              Who do you know who runs their own
       card/ATM card?                                       business? Can you ask them who they bank
    Do they provide telephone banking and/or               with and whether they're happy?
       internet banking?
    What are the charges for debits, standing
       orders and credits?
    What are their overdraft arrangement fees?
    What rates of interest do they offer?
    Can they offer you negotiable terms to give
       you a better deal?

Small Business Insurance
You will need to seek specialist advice on exactly what type of insurance is relevant to your
specific business. Examples of the type of insurance that may be applicable include:
    Employer's liability insurance - As an employer you must, by law, have employer's
       liability insurance. A copy of the relevant certificate of insurance must also be
       prominently displayed at all places of work.
    Fire and other perils insurance - Adequate insurance to cover the possible
       destruction of your buildings and contents through fire is essential. You should also
       ensure that cover is in place for other perils, for example storm damage, flooding or
    Theft insurance - This type of insurance will only normally cover thefts where a
       forced entry has been made. It does not usually cover such events as thefts by
       employees. If you do wish to insure against this you will need to mange additional
    Consequential loss insurance - If your business does suffer a major catastrophe
       which effectively stops you trading for a time this type of cover will insure against the
       loss of profits. It may also cover your employee costs and the costs of establishing
       interim trading premises.
    Professional indemnity insurance - If you are in a service-based business offering
       expert advice, it is essential that you have adequate professional indemnity
       insurance to cover you against claims by your clients for damages caused by your
       negligence. In some cases, it will be required in any event as a condition of your
       membership of a professional body.
    Key person insurance - If you have one or more key members of staff on whom the
       business depends for success you should consider key person insurance. This will
       pay out a lump sum in the event of that person's death.

      Personal Insurance - It is advisable to consider personal insurance to cover
       yourself in the event of accident, sickness or death. If you are trading on your own
       you must remember that you may be unable to earn an income should anything
       happen that could affect your health.



A stakeholders is a person or organisation with a legitimate interest in a given situation,
action or enterprise. Initially used only in relation to corporations, the term was adopted in
British politics and subsequently saw use especially in the diplomatic and non-
governmental organisation fields. A corporate stakeholder is a party who affects, or can be
affected by, the company's actions. The stakeholder concept was developed and
championed by R. Edward Freeman in the 1980s. It has gained wide acceptance in
business practice and in theorizing relating to strategic management, corporate governance
and business purpose.

Stakeholders are persons, groups or organisations that has direct or indirect stake in an
organization because it can affect or be affected by the organisation‘s strategies, policies,
objectives and actions. Key stakeholders in a business organisation include creditors,
customers, directors, employees, government, agencies, shareholders, suppliers, unions,
and the community from which the business draws its resources. Although stake-holding is
usually self-legitimizing (those who judge themselves to be stakeholders are de facto so),
all stakeholders are not equal and different stakeholders are entitled to different
considerations. For example, a firm's customers are entitled to fair trading practices but
they are not entitled to the same consideration as the firm's employees.

Stakeholders can be divided into two very broad groups:
    Primary stakeholders are those ultimately affected, either positively (beneficiaries)
      or negatively (for example, those involuntarily resettled). In most projects, primary
      stakeholders will be categorised according to social analysis. Thus, primary
      stakeholders should often be divided by gender, social or income classes,
      occupation or service user groups. In many projects, categories of primary
      stakeholders may overlap (e.g. women and low-income groups; or minor forest
      users and ethnic minorities).
    Secondary stakeholders are the intermediaries in the aid delivery process. They
      can be divided into funding, implementing, monitoring and advocacy organisations,
      or simply governmental, NGO and private sector organisations. In many projects it
      will also be necessary to consider key individuals as specific stakeholders (e.g.
      heads of departments or other agencies, who have personal interests at stake as
      well as formal institutional objectives). Also note that there may be some informal
      groups of people who will act as intermediaries. For example, politicians, local

       leaders, respected persons with social or religious influence. Within some
       organisations there may be sub-groups which should be considered as
       stakeholders. For example, public service unions, women employees, specific
       categories of staff. This definition of stakeholders includes both winners and losers,
       and those involved or excluded from decision-making processes.
      Key stakeholders are those who can significantly influence, or are important to the
       success of the project. Influence refers to how powerful a stakeholder is;
       'importance' refers to those stakeholders whose problems, needs and interests are
       the priority of the funder's aid - if those important stakeholders are not assisted
       effectively then the project cannot be deemed a 'success'.


The stakeholder analysis is an analysis that aims to identify the stakeholders that are
affected by the results of a project simultaneously with the result‘s success depending on
the cooperation between the stakeholder and the project. It is important to identify all
stakeholders for the purpose of identifying their success criteria and turning these into
quality goals.

The need for a practical, useable approach to visualising many different stakeholder
communities has led to the development of a range of listing and mapping techniques by
academics, consultants and businesses over the years. Obviously the ‗importance‘ of a
stakeholder is directly associated with his or her ability to influence the project/business
through their network of relationships; the difference in the analysis is in the way this is
assessed. All of the mapping techniques discussed below use a qualitative perception of a
stakeholder‘s ‗importance‘ rather than a quantitative analysis of the influence networks and
relationships surrounding the stakeholder to determine an absolute value for that person‘s

The first step in building any stakeholder map is to develop a categorised list of the
members of the stakeholder community. Once the list is reasonably complete it is then
possible to assign priorities in some way, and then to translate the ‗highest priority‘
stakeholders into a table or a picture. The potential list of stakeholders for any project will
always exceed both the time available for analysis and the capability of the mapping tool to
sensibly display the results, the challenge is to focus on the ‗right stakeholders‘ who are
currently important and to use the tool to visualise this critical sub-set of the total

The most common presentation styles use a matrix to represent two dimensions of interest
with frequently a third dimension shown by the colour or size of the symbol representing the
individual stakeholders. Some of the commonly used ‗dimensions‘ include:
     Power (high, medium, low)
     Support (positive, neutral, negative)
     Influence (high or low)
     Interest (high or low)

      Attitude (supportive or obstructive).

However, stakeholder analysis by itself only identifies potentially relevant stakeholders - it
does not ensure that they will become active and meaningful participants; other measures
to generate interest and sustain commitment will be necessary as well.

When should it be done?
Stakeholder analysis should always be done at the beginning of a project/business, even if
it is a quick list of stakeholders and their interests. Such a list can be used to draw out the
main assumptions which are needed if a project is going to be viable, and to identify some
of the key risks. The outside intervention by an aid agency, bringing additional resources
into an area, may in itself create new stakeholder groups which previously did not exist.
Stakeholder analysis must be repeated at intervals during the project/business cycle to
ensure that the involvement of such groups is adequately addressed and also to check
whether the situations of original stakeholders have changed. Stakeholder analysis often
involves sensitive and undiplomatic information. Many interests are covert, and agendas
are partially hidden. In many situations there will be few benefits in trying to uncover such
agendas in public.

How to do a stakeholder analysis
There are several steps to doing a stakeholder analysis:
    draw up a 'stakeholder table'
    do an assessment of each stakeholder's importance to project success and their
      relative power/influence
    identify risks and assumptions which will affect project design and success.

Stakeholder tables
To draw up a stakeholder table:

1. Identify and list all potential stakeholders

Box 8: Checklist for identifying stakeholders

      Have all primary and secondary stakeholders been listed?
      Have all potential supporters and opponents of the project been identified?
      Has gender analysis been used to identify different types of female stakeholders (at both primary and
       secondary levels)?
      Have primary stakeholders been divided into use/occupational groups, or income groups?
      Have the interests of vulnerable groups (especially the poor) been identified?
      Are there any new primary or secondary stakeholders that are likely to emerge as a result of the

2. Identify their interests (overt and hidden) in relation to the problems being
   addressed by a project and its objectives. Note that each stakeholder may have
   several interests

Box 9: Checklist for drawing out stakeholders' interests in relation to the project/business

Interests of all types of stakeholders may be difficult to define, especially if they are 'hidden', or in
contradiction with the openly stated aims of the organisations or groups involved. A rule of thumb is to relate
each stakeholder to either the problems which the project is seeking to address (if at an early stage of the
project/business), or the established objectives of the project (if the project/business is already under way).

Interests may be drawn out by asking:
     What are the stakeholder's expectations of the project?
     What benefits are there likely to be for the stakeholder?
     What resources will the stakeholder wish to commit (or avoid committing) to the project/business?
     What other interests does the stakeholder have which may conflict with the project/business?
     How does the stakeholder regard others in the list?

Information on secondary stakeholders should be available from institutional appraisals; information on
primary stakeholders should be available from social analyses. Especially in the case of primary stakeholders,
many of the interests will have to be defined by the persons with the best 'on the ground' experience. Double
check the interests being ascribed to primary groups, to confirm that they are plausible.

3. Briefly assess the likely impact of the project/business on each of these interests
   (positive, negative, or unknown)

Assessing the influence and 'importance' of stakeholders
Assessing influence
    Influence is the power which stakeholders have over a project/business - to control
      what decisions are made, facilitate its implementation, or exert influence which
      affects the project negatively. Influence is perhaps best understood as the extent to
      which people, groups or organisations (i.e. stakeholders) are able to persuade or
      coerce others into making decisions, and following certain courses of action.
    Power may derive from the nature of a stakeholder's organisation, or their position in
      relation to other stakeholders (for example, line ministries which control budgets and
      other departments). Other forms of influence may be more informal (for example,
      personal connections to ruling politicians). It may also be necessary to consider
      stakeholders whose power, and therefore influence, will increase because of
      resources introduced by the project/business.

Assessing importance to project/business success
    Importance indicates the priority given by funders to satisfying stakeholders' needs
      and interests through the project. Importance is likely to be most obvious when
      stakeholder interests in a project/business converge closely with the funder's
    Importance is distinct from influence. There will often be stakeholders, especially
      unorganised primary stakeholders, upon which the project/business places great
      priority. These stakeholders may have weak capacity to participate in the
      project/business, and limited power to influence key decisions.

Box 10: Checklist for assessing which stakeholders are important for project/business success

When assessing the importance of stakeholders to project success, use these 'checklist' questions, the

answers to which may already be suggested by the information existing in stakeholders' tables:
    Which problems, affecting which stakeholders, does the project seek to address or alleviate?
    For which stakeholders does the project place a priority on meeting their needs, interests and
    Which stakeholders' interests converge most closely with policy and project objectives?

4. indicate the relative priority which the project/business should give to each stakeholder
   in meeting their interests

Identifying appropriate stakeholder participation
    Defining who should participate, in what ways, at what stage of the project
    Stakeholder analysis can contribute to the process of deciding who the key
       stakeholders are to be included in the project/business. Note that the 'key' refers to
       high importance, high influence, or both.
    Key stakeholders with high influence and importance to project/business success
       are likely to provide the basis of the project 'coalition of support' and are potential
       partners in planning and implementation.
    Conversely, key stakeholders with high influence, but with low importance to project
       success may be 'managed' by being consulted or informed.

Map out your stakeholders using the Power/Interest Grid shown below and classify them by
their power over your work and by their interest in your work.

Someone's position on the grid shows you the actions you have to take with them:
   High power, interested people: These are the people you must fully engage, and
     make the greatest efforts to satisfy.
   High power, less interested people: Put enough work in with these people to keep
     them satisfied, but not so much that they become bored with your message.
   Low power, interested people: Keep these people adequately informed, and talk
     to them to ensure that no major issues are arising. These people can often be very
     helpful with the details of your project.
   Low power, less interested people: Again, monitor these people, but do not bore
     them with excessive communication.

Using this template, work through the planning exercise using the steps below:

5. Update the Planning Sheet With Information From the Power/Interest Grid: Enter
   the stakeholder name, their influence and interest in your job or project, and your
   current assessment of where they stand with respect to it. This information comes
   straight from your Power/Interest Grid.

6. Plan Your Approach to Stakeholder Management: The amount of time you should
   allocate to Stakeholder Management depends on the size and difficulty of your
   projects and goals, the time you have available for communication, and the amount of
   help you need to achieve the results you want. Think through the help you need, the
   amount of time that will be taken to manage this, and the time you will need for
   communication. Help with the project could include sponsorship of the
   project/business, advice and expert input, reviews of material to increase quality, etc.

7. Think Through What You Want From Each Stakeholder: Next, work through your
   list of stakeholders thinking through the levels of support you want from them, and the
   roles you would like them to play (if any). Think through the actions you would like
   them to perform. Write this information down in the ―Desired Support‖, ―Desired Project
   Role‖ and ―Actions Desired‖ columns.

8. Identify the Messages You need to Convey: Next, identify the messages that you
   need to convey to your stakeholders to persuade them to support you and engage with
   your projects or goals. Typical messages will show the benefits of what you are doing
   to the person or organization, and will focus on key performance drivers like increasing
   profitability or delivering real improvements.

9. Identify Actions and Communications: Finally, work out what you need to do to win
   and manage the support of these stakeholders. With the time and resource you have
   available, identify how you will manage the communication to, and the input from, your

    stakeholders. Focusing on the high-power/high-interest stakeholders first, and the low-
    interest/low-power stakeholders last, devise a practical plan that communicates with
    people as effectively as possible, providing the appropriate amount of information in a
    way that neither under-, nor over-communicates. Think through what you need to do to
    keep your best supporters engaged and on-board. Work out how to win over, or
    neutralize, the opposition of your skeptics. Where you need the active support of
    people who are not currently interested in what you are doing, think about how you
    can engage them and raise their level of interest.


Ultimately, all projects/businesses depend on selecting stakeholders with whom they can
jointly work towards goals that will reduce or reverse the threats to your key conservation
targets. A stakeholder analysis can help a project or programme identify:
     The interests of all stakeholders who may affect or be affected by the
     Potential conflicts or risks that could jeopardise the initiative;
     Opportunities and relationships that can be built on during implementation;
     Groups that should be encouraged to participate in different stages of the
     Appropriate strategies and approaches for stakeholder engagement; and
     Ways to reduce negative impacts on vulnerable and disadvantaged groups.

The full participation of stakeholders in both project/business design and implementation of
is a key to – but not a guarantee of – success. Stakeholder participation:
     Gives people some say over how projects or policies may affect their lives;
     Is essential for sustainability;
     Generates a sense of ownership if initiated early in the development process;
     Provides opportunities for learning for both the project team and stakeholders
       themselves; and
     Builds capacity and enhances responsibility.

Why do a stakeholder analysis?
   to identify and define the characteristics of key stakeholders
   to assess the manner in which they might affect or be affected by the
     programme/project outcome
   to understand the relations between stakeholders, including an assessment of the
     real or potential conflicts of interests and expectations between stakeholders
   to assess the capacity of different stakeholders to participate


All successful businesses need to have a close understanding of potential and existing
customers and the marketplace they work in. This understanding allows you to target
customers, sell effectively, compete with other suppliers and spot new opportunities.

Performing market research on potential customers and your competitors will help you to
gain this vital knowledge.

You can build a picture of general trends using published market information - from free
government statistics and data to paid-for market reports from commercial providers. Your
own contacts and sales records can also be a great resource. You can add to your
knowledge by using field research - from surveys and discussions to service tests - to
investigate customers' attitudes and examine questions specific to your business.

It is important to conduct market research, not only into the type of consulting you wish to
do, but also into the other companies that exist in that marketplace. Market research can be
conducted before you leave your current position and provides an ideal way of testing the
water. However the extent to which quantitative market research is possible depends on
the focus of your consulting business. Much of the consulting market is comprised of
individual consultants and therefore it is relatively hard to quantify and document.

Box 11: Objectives for market research

      To identify whether there is a market for your product or service, and the possible size of your target
      To assess the existence, size and location of other competitors in your market.
      To discover the current pricing structure in your market.
      To identify corporate needs.
      To evaluate the best way to package your product or service for the market.
      To be used as a beginning for the business development process. Many consultants find their first
       client this way!


Once you've identified the information you need, you can start to draw it together. Initially
it's worth looking at information that's already been published, e.g. market reports, official
statistics, trade publications, etc. Some of this information is free, but some you'll have to
pay for. You can obtain market reports and other information from a wide range of sources:
      Your local business reference library is a good starting point.
      The consultants association will have information about your market sector and
        about any relevant trade publications.
      You can read official statistics on the economy, population and social trends
        prepared by the National agencies; they often present such data on their websites.
      Reports in business magazines and the business pages of national newspapers can
        be informative.
      Local authorities and Chambers of Commerce can provide local information.
      The Internet contains a wealth of business data. Search engines such as Google
        and Ask can aid searching, while directories such as Yahoo make it easy to look for
        information by sector.
      Commercial publishers of market reports. Reports can often be purchased from the
        publisher's website.

      Buy a mailing list for your potential market and distribute a questionnaire to the
       names on the list about your product or service. Remember the return rate on such a
       survey is very small – less than 2%. The questionnaire can also be followed up by a
       phone call, and this will increase the response rate as well as the success of the
       market assessment.
      Create a mailing list of people you know in the industry and send them a
       questionnaire. You can either ask that the questionnaire be returned, or you can ask
       to meet directly with them to obtain their feedback.
      Call contacts whose opinions you respect, and conduct a short phone interview with
       them. In this telephone interview, you could ask such questions as: ‗If you were in
       my shoes, what would you do?‘ ‗Who do you think would be interested in the
       services?‘ ‗What else might they be interested in?‘
      Attend specialized meetings/seminars/workshops/conferences for networking
       reasons and use the list of members to target for research.
      Attend cocktail parties and other social functions to network.
      Read current consulting and business publications.


Undertaking customer research on loyalty, satisfaction and service can make a big
difference to your business. You'll need to focus your efforts on finding out as much as you
can about existing and potential customers. If you can work out how they make their buying
decisions, you can adapt your sales methods and techniques to fit your customers' needs.
For business customers, you'll want to know how big their businesses are, what sectors
they're in, and who makes the decision to buy your product or service.
If you're targeting individual consumers, it may be useful to know such things as their
gender, age, occupation, income, lifestyle, attitudes or social class.

For your existing customers, try to find out:
     what they think about your products or services
     why they need your product or service - this may be different from what you believe
     why they buy from you and not your competitors
     what they think of your prices
     what they expect from you, eg reliable delivery
     how they rate your customer service
     how they think you could develop or refine your products or services

For your potential customers, try to find out:
     who your potential customers are and what groups they fall into
     how many potential customers there are
     how much of your kind of product or service they already buy from your competitors
     the criteria on which they make buying decisions
     what it would take to get them to buy from you
     what developments they expect in your product or service
     when and where they prefer to buy

Box 12: Guide to identifying your customers

   1. Market research needs to concentrate on who will buy, why will they buy and how much will they buy.
   2. It is much easier to sell a product that meets some already perceived need rather than to try to
      educate a market to buy a new, perhaps revolutionary, product or service.
   3. Look for groups within your target market which you think you can sell to, either because no one is
      currently selling to them or because you can adapt your product to meet their needs.
   4. Rational and emotional factors affect your target group's willingness to buy. Research these and alter
      your service or sales approach to match.
   5. Knowing how much customers will buy is crucial to your business planning. You need to research
      market size, market structure, market share, the competition and market trends.
   6. Try to carry out your research in a systematic way so that it can be properly analysed. Use desk
      research, interviews and test trials, if possible.


Getting a good understanding of market trends is important if your business is to make the
most of its opportunities and remain competitive. You will also need to understand your
competitors and keep an eye on what they are doing.
Try to get information on:
    Demand for your service - is it growing or shrinking?
    General economic and market trends.
    How customer requirements and buying behaviour could change in the future.
    What new products are in your competitor's pipeline - could they make yours look
    How competitors are changing - what are their plans?
    What competitors offer and the prices they charge.
    How your competitors advertise and promote themselves.
    Any forthcoming legislation which could affect your market.


Though there's a lot of readily available market information, you need to be careful how you
interpret it. External data might not be in a useful format to use easily. It may have been
collected for other purposes or be from a range that doesn't tally with your target market.
Beware of out-of-date market information. This can be misleading, as the market may have
changed significantly since the information was published. It can be particularly hard to tell
how recent any information published on the Internet is. Some information on the web can
be unreliable or biased.

Remember that statistics can sometimes mask the true picture. For example, an "average"
income for the population in your area might conceal a high proportion of low earners -
meaning fewer people can afford your product than it appears. The same principle applies
to your own sales records - one or two major customers could distort the picture. Most of
all, don't make up your mind in advance. Finding market information that simply confirms

what you already believe is easy - but only a realistic picture of your customers and
markets will be useful to your business.


Published market information and your own data can tell you a lot about your customers
and your market - but it's unlikely to tell you everything.
Field research can be quantitative or qualitative:
     quantitative research provides statistical information - for example, how many
       potential customers there are and what their average incomes are
     qualitative research examines people's feelings and attitudes towards your product
       or service, and what motivates them

You'll probably need to carry out some of your own quantitative and qualitative field
research - talking, observing or carrying out product tests with customers and potential
customers. This can help you to:
    test customers' reactions to a new product, and adapt it if necessary
    investigate attitudes of customers and potential customers
    find information specific to your business or a local market, rather than the market as
       a whole

Planning field research
Good planning is essential if you're to get the right results from field research.
First you need to decide how to collect the information you want. Popular methods include:
     A survey, using a fixed set of questions - the most effective way of carrying out a
        survey is typically with face-to-face interviews, but phone interviews, online
        questionnaires and postal surveys are also possibilities.
     A discussion - discussions are good for qualitative research as they allow you to
        explore people's attitudes in more detail. Discussions are often held in small focus
     Observation - investigate what people do rather than what they say. For example,
        look at how shoppers react when they pass a particular point-of-sale display.
     An experiment - you might, for instance, run a blind taste test of your soft drink
        against your competitors' products. Alternatively, you could lend your new product to
        a customer and ask for feedback.

Once you've decided how you'll gather the information, you'll need to work out how to make
it happen. Budget how much time and money will be needed - the time involved will
normally be significant. You'll need to design your research. For example, drawing up a
questionnaire or deciding how you'll run a focus group. Then there are the logistics. If you
want to carry out street interviews, make sure your researchers have the required local
authority licence and identity card. If you want to run a focus group or conduct face-to-face
interviews or product tests, where will you hold them? Where will you find the participants?
And who'll run the session? Consider carefully whether you've got the skills in-house to do

this. If not, it's probably a good idea to get a market research agency to do your research
for you.

Box 13: Tips for successful field research

Ask the right questions
Badly phrased questions produce misleading results. Avoid closed questions which encourage the answer
"yes" or "no". A stationery shop that asks customers if they intend to buy pens in the next year will find out just
that - but they won't discover what type of pens, eg specially engraved pens or cheap biros.
Talk to the right people
A survey at a railway station, for example, will get answers from commuters, but if you're targeting people
who stay at home with young children, this won't be representative of your market.
Talk to enough people
A survey, for example, of two people won't get you enough information. Some market research professionals
suggest asking at least 150 people in order to get a complete picture.
Keep research impartial
It's easy to encourage people to give the answer you want. For example, by asking leading questions or
smiling at the "right" answer. Discussions, where you're not working from a list of set questions, are
particularly easy to distort. And in a focus group, individuals with strong opinions may influence the views of
Interpret results with care
You need to make sure you draw the right conclusions from your research. Bear in mind that people may
distort answers in the hope of affecting what you do. For example, they might say they would be interested in
a product "if the price was lower". Qualitative research - where you're investigating feelings and attitudes - can
be particularly difficult to interpret.
Be realistic
It can be tempting to pick out results that confirm what you want to hear, and ignore the rest. But ignoring
negative results could damage your business. Be prepared to modify your plans if necessary.
If you don't have the time or skills to carry out research yourself, consider using a market research agency.



The first formal step in the marketing planning process is that of conducting the marketing
audit. Ideally, at the time of producing the marketing plan, this should only involve bringing
together the source material which has already been collected throughout the year - as part
of the normal work of the marketing department.

The emphasis at this stage is on obtaining a complete and accurate picture. In a single
organization, however, it is likely that only a few aspects will be sufficiently important to
have any significant impact on the marketing plan; but all may need to be reviewed to
determine just which 'are' the few.
In this context some factors related to the customer, which should be included in the
material collected for the audit, may be:
     Who are the customers?
     What are their key characteristics?
     What differentiates them from other members of the population?

       What are their needs and wants?
       What do they expect the `product' to do?
       What are their special requirements and perceptions?
       What do they think of the organization and its products or services?
       What are their attitudes?
       What are their buying intentions?

Box 14: Main contents of a marketing plan

1) Executive Summary
2) Organisational Mission and Vision
3) Analysis of the current situation
   a) PEST Analysis
   b) Market Analysis (market definiton, size, segmentation, industry structure, Porter‘s five forces analysis,
       competition and market share, competitor‘s strengths and weaknesses, market trends)
   c) SWOT Analysis
4) Define organisational objectives
5) Strategy – based on the marketing mix analysis
   a) Market segmentation
       i) determine actual and potential customers
       ii) identify market segments
       iii) analyse competition intensity for each segment
       iv) select attractive market segments
   b) Market targeting
       i) define abilities and resources needed – key success factors
       ii) analyse competitors strengths and weaknesses – main competitors capabilities
       iii) compare company‘s abilities vs. competitors‘ - differentiate
       iv) define segments to be targeted
   c) Market positioning
       i) identify the different segments advantages
       ii) develop position concept
6) Plan marketing activities - Action Plan
7) Financial Forecast
8) Control tools


PEST analysis stands for "Political, Economic, Social, and Technological analysis" and
describes a framework of external environmental factors used in environmental scanning. It
is a part of the external analysis when doing market research and gives a certain overview
of the different macro-environmental factors that the company has to take into
consideration. It is a useful strategic tool for understanding market growth or decline,
business position, potential and direction for operations.
It is also referred to as the STEP, STEEP, PESTEL, PESTLE or LEPEST (or Political,
Economic, Socio-cultural, Technological, Legal, Environmental). Recently it was even
further extended to STEEPLE and STEEPLED, including education and demographics.
      Political factors include areas such as tax policy, employment laws, environmental
         regulations, trade restrictions and tariffs and political stability.

     Economic factors are economic growth, interest rates, exchange rates and inflation
    Social factors often look at the cultural aspects and include health consciousness,
      population growth rate, age distribution, career attitudes and emphasis on safety.
    Technological factors include ecological and environmental aspects and can
      determine barriers to entry, minimum efficient production level and influence
      outsourcing decisions. Technological factors look at elements such as R&D activity,
      automation, technology incentives and the rate of technological change.
The PEST factors can be classified as opportunities and threats in a SWOT analysis.
PEST/PESTLE and SWOT analyses can be used as a basis for the analysis of business
and environmental factors


SWOT Analysis is a strategic planning tool used to evaluate the Strengths, Weaknesses,
Opportunities, and Threats involved in a project or in a business venture. It involves
specifying the objective of the business venture or project and identifying the internal and
external factors that are favourable and less favourable to achieving that objective. The
technique is credited to Albert Humphrey, who led a research project at Stanford University
in the 1960s and 1970s {using data from Fortune 500 companies}.

If SWOT analysis does not start with defining a desired end state or objective, it runs the
risk of being useless. A SWOT analysis may be incorporated into the strategic planning
     Strengths: attributes of the organization that are helpful to achieving the objective
     Weaknesses: attributes of the organization that are harmful to achieving the
     Opportunities: external conditions that are helpful to achieving the objective
     Threats: external conditions that are harmful to achieving the objective.

Identification of SWOTs is essential because subsequent steps in the process of planning
for achievement of the selected objective may be derived from the SWOTs.
First, the decision makers have to determine whether the objective is attainable, given the
SWOTs. If the objective is NOT attainable a different objective must be selected and the
process repeated.

Generating Strategies
If, on the other hand, the objective seems attainable, the SWOTs are used as inputs to the
creative generation of possible strategies, by asking and answering each of the following
four questions, many times:
      How can we Use each Strength?
      How can we Stop each Weakness?
      How can we Exploit each Opportunity?
      How can we Defend against each Threat?

The aim of any SWOT analysis is to identify the key internal and external factors that are
important to achieving the objective. SWOT analysis groups key pieces of information into
two main categories:
    Internal factors – The strengths and weaknesses internal to the organization
    External factors – The opportunities and threats presented by the external

The internal factors may be viewed as strengths or weaknesses depending upon their
impact on the organization's objectives. What may represent strengths with respect to one
objective may be weaknesses for another objective. The factors may include all of the
4P's; as well as personnel, finance, manufacturing capabilities, and so on.

The external factors may include macroeconomic matters, technological change,
legislation, and socio-cultural changes, as well as changes in the marketplace or
competitive position. The results are often presented in the form of a matrix.

SWOT analysis is just one method of categorization and has its own weaknesses. For
example, it may tend to persuade companies to compile lists rather than think about what is
actually important in achieving objectives. It also presents the resulting lists uncritically and
without clear prioritization so that, for example, weak opportunities may appear to balance
strong threats.


The marketing mix is generally accepted as the use and specification of the 4Ps
describing the strategic position of a product in the marketplace. A prominent marketer, E.
Jerome McCarthy, proposed a 4Ps classification in 1960, which would see wide popularity.
The 4Ps concept is explained in most marketing textbooks and classes. Although some
marketers have added other Ps, such as personnel and packaging, the fundamental dogma
of marketing typically identifies the 4Ps of the marketing mix as referring to:
    Product - An object or a service that is mass produced or manufactured on a large
       scale with a specific volume of units. A typical example of a mass produced service
       is the hotel industry. A less obvious but ubiquitous mass produced service is a
       computer operating system. Typical examples of a mass produced objects are the
       motor car and the disposable razor.
    Price – The price is the amount a customer pays for a product. It is determined by a
       number of factors including market share, competition, material costs, product
       identity and the customer's perceived value of the product. The business may
       increase or decrease the price of product if other stores have the same product.
    Place – Place represents the location where a product can be purchased. It is often
       referred to as the distribution channel. It can include any physical store as well as
       virtual stores on the Internet.
    Promotion – Promotion represents all of the communications that a marketer may
       use in the marketplace. Promotion has four distinct elements - advertising, public
       relations, word of mouth and point of sale.

Some people claim the 4Ps are too strongly oriented towards consumer markets and do
not offer an appropriate model for industrial product marketing. Others claim it has too
strong of a product market perspective and is not appropriate for the marketing of services.
An expanded system based on 7Ps stresses the importance of: Place, Product, Price,
Promotion, People, Process, and Physical premises.


A team is a collection of individuals organized to accomplish a common purpose, who are
interdependent, and who can be identified by themselves and observers as a team. Teams
exist within a larger organisation and interact with other teams and with the organisation.
Teams are one way for organisations to gather input from members, and to provide
organisation members with a sense of involvement in the pursuit of organisational goals.
Further, teams allow organisations flexibility in assigning members to projects and allow for
cross-functional groups to be formed.


There are six major types of teams: informal, traditional, problem solving, leadership, self-
directed, and virtual.

              Social in nature
              Leaders may differ from those appointed by the organisation
              Departments/functional areas
              Supervisors/managers appointed by the organisation
              Temporary teams
              Frequently cross-functional
              Focused on a particular project
              Steering committees
              Advisory councils
              Small teams
              Little or no status differences among team members
              Have authority to decide how to get the work done

                 Geographically spread apart
                 Meetings and functions rely on available technology


1. There is a clear unity of purpose.
There was free discussion of the objectives until members could commit themselves to
them; the objectives are meaningful to each group member.

2. The group is self-conscious about its own operations.
The group has taken time to explicitly discuss group process -- how the group will function
to achieve its objectives. The group has a clear, explicit, and mutually agreed-upon
approach: mechanics, norms, expectations, rules, etc. Frequently, it will stop to examine
how well it is doing or what may be interfering with its operation. Whatever the problem
may be, it gets open discussion and a solution found.

3. The group has set clear and demanding performance goals
For itself and has translated these performance goals into well-defined concrete milestones
against which it measures itself. The group defines and achieves a continuous series of
"small wins" along the way to larger goals.

4. The atmosphere tends to be informal, comfortable, relaxed.
There are no obvious tensions, a working atmosphere in which people are involved and

5. There is a lot of discussion in which virtually everyone participates,
but it remains pertinent to the purpose of the group. If discussion gets off track, someone
will bring it back in short order. The members listen to each other. Every idea is given a
hearing. People are not afraid of being foolish by putting forth a creative thought even if it
seems extreme.

6. People are free in expressing their feelings as well as their ideas.

7. There is disagreement and this is viewed as good.
Disagreements are not suppressed or overridden by premature group action. The reasons
are carefully examined, and the group seeks to resolve them rather than dominate the
dissenter. Dissenters are not trying to dominate the group; they have a genuine difference
of opinion. If there are basic disagreements that cannot be resolved, the group figures out a
way to live with them without letting them block its efforts.

8. Most decisions are made at a point where there is general agreement.
However, those who disagree with the general agreement of the group do not keep their
opposition private and let an apparent consensus mask their disagreement. The group
does not accept a simple majority as a proper basis for action.

9. Each individual carries his or her own weight,
meeting or exceeding the expectations of other group members. Each individual is
respectful of the mechanics of the group: arriving on time, coming to meetings prepared,
completing agreed upon tasks on time, etc. When action is taken, clears assignments are
made (who-what-when) and willingly accepted and completed by each group member.

10. Criticism is frequent, frank and relatively comfortable.
The criticism has a constructive flavour -- oriented toward removing an obstacle that faces
the group.

11. The leadership of the group shifts from time to time.
The issue is not who controls, but how to get the job done.
(Sources: The Human Side of Enterprise, by Douglas MacGregor; The Wisdom of Teams,
by Kaztenbach and Smith)


Forming is the stage when team members become acquainted with one another. They also
assess the group task and the ground rules that will apply to that task. At this stage
everyone is typically very polite and willing to go along with suggestions made by other
team members. Team members try to avoid making enemies and are frequently more
patient with one another than they might be later in the process.

As the novelty of being a member of the team wears off, conflict emerges. Members of the
team emerge who want to exert greater influence over the process. Leadership struggles
begin, as do interpersonal conflicts. Conflicts erupt over the task requirements and the best
way to achieve that task. This is the stage at which listening and finding mutually
acceptable resolutions to the conflict is most important. The team can either emerge united
and ready to take on the assigned task, or divided, with some members taking a passive

In the norming stage team members make an effort to discover what standards of
performance are acceptable. What do deadlines really mean? How high a level of quality is
necessary? Does every member have to be at every meeting? What about developing sub-
teams? If the team can establish harmonious relationships at this stage, they are ready to
move on to the performing stage. Some teams, however, disband at this stage.

At this stage the team is ready to be productive and work on the task assigned. Team
members' roles have been established and clarified. Group interaction should be relatively
smooth as the team applies some of the problem-solving skills it learned in earlier stages to
the task at hand. If the team has reached this stage without successfully working through

the problems and issues of the earlier stages, it may disband or regress and work through
those issues.

At some point almost all teams are disbanded, whether their task is completed or a team
member leaves. On the one hand this can be a happy stage, with members congratulating
one another on a job well done. On the other hand adjournment means the disruption of
working arrangements that may have become comfortable and efficient, and possibly the
end of friendships.


Forming an effective team is more complex than simply throwing a group of people
together, assigning them a task, and hoping for the best. Potential team members need to
be interviewed and their skills and knowledge should be assessed. Issues to consider in
selecting team members include: the individual's motivation with respect to both the team
and the task at hand; the attitudes and goals of potential team members; potential
problems with intra-group relationships; and potential problems with relationships with
external groups.

The organisation needs to first assess what the skills, knowledge, and attitudes of potential
team members should be. What are the tasks that need to be accomplished for the team to
be successful? Have managers analyzed the jobs and developed an inventory of required
skills and knowledge?

Once these steps have been completed, potential team members can be interviewed.
Among the issues the interview process should cover are:

      What strengths does the individual bring to the team?
      What is she or he is willing to work on improving?
      What problem solving style does the individual employ?
      Can she or he share information in an effective manner?
      Does the individual have good listening skills?
      Can the individual provide constructive feedback?

It is important to remember that effective teams are generally made up of a variety of
personalities. The selection process needs to be structured so that it is not biased toward
one personality type. An effective team needs both the thoughtful, detail-oriented
individuals, as well as the outgoing, insightful individuals.

Additional considerations for building an effective team are being identified. There are four
important factors to consider when selecting team members:

   1. years of professional work experience;
   2. frequency of team participation;

   3. type of team training;
   4. situational entry to team assignments (volunteered, assigned, requested).

These factors can be effectively utilized by management when selecting team members to
increase the opportunity for overall success.



Leadership is a process in which a leader attempts to influence his or her followers to
establish and accomplish a goal or goals. In order to accomplish the goal, the leader
exercises his or her power to influence people. That power is exercised in earlier stages by
motivating followers to get the job done and in later stages by rewarding or punishing those
who do or do not perform to the level of expectation. Leadership is a continuous process,
with the accomplishment of one goal becoming the beginning of a new goal. The proper
reward by the leader is of utmost importance in order to continually motivate followers in
the process.

What does leadership do for an organization? If we define leadership as a process
involving interactions between a leader and followers, usually subordinate employees of a
company, leadership profoundly affects the company: It defines or approves the mission or
goal of the organization. This goal setting is a dynamic process for which the leader is
ultimately responsible. A strong visionary leader presents and convinces followers that a
new course of action is needed for the survival and prosperity of the group in the future.
Once a goal is set, the leader assumes the role of ensuring successful accomplishment of
the goal. Another vital role of leadership is to represent the group/organization and link it to
the external world in order to obtain vital resources to carry out its mission. When
necessary, leadership has to defend the organization's integrity.


What does it take to make leadership successful or effective? Early students of leadership
examined great leaders throughout history, attempting to find traits that they shared.
Among personality traits that they found were determination, emotional stability, diplomacy,
self-confidence, personal integrity, originality, and creativity. Intellectual abilities included
judgmental ability, knowledge, and verbal communication ability. In addition, physical traits
cannot be ignored, such as age, height, weight, and physical attractiveness.

It is not only inborn personality traits that are important but also styles and behaviors that a
person learns. Strong autocratic leaders set their goals without considering the opinions of
their followers, then command their followers to execute their assigned tasks without
question. Consultative leaders solicit the opinions and ideas of their followers in the goal-

setting process but ultimately determine important goals and task assignments on their
own. Democratic or participative leaders participate equally in the process with their
followers and let the group make decisions. Extremely laid-back leaders, so called laissez-
faire leaders, let the group take whatever action its members feel is necessary.

Inspired and led by Renis Likert, a research team at the University of Michigan studied
leadership for several years and identified two distinct styles, which they referred to as job-
centered and employee-centered leadership styles. The job-centered leader closely
supervises subordinates to make sure they perform their tasks following the specified
procedures. This type of leader relies on reward, punishment, and legitimate power to
influence the behavior of followers. The employee-centered leader believes that creating a
supportive work environment ultimately is the road to superior organizational performance.
The employee-centered leader shows great concern about the employees' emotional well-
being, personal growth and development, and achievement.

A leadership study group at Ohio State University, headed by Harris Fleishman, found
similar contrasts in leadership style, which they referred to as initiating structure and
consideration. The leadership style of initiating structure is similar to the job-centered
leadership style, whereas consideration is similar to the employee-centered leadership
style. It was the initial expectation of both research groups that a leader who could
demonstrate both high initiating structure (job centered) and high consideration (employee
centered) would be successful and effective in all circumstances.

Many students of leadership today believe that there is no one best way to lead, believing
instead that appropriate leadership styles vary depending on situations. Fred Fiedler
(1967), for instance, believes that a task-oriented leadership style is appropriate when the
situation is either extremely favorable or extremely unfavorable to the leader. A favorable
situation exists when the relationship between the leader and followers is good, their tasks
are well-defined, and the leader has strong power; when the opposite is true, an
unfavorable situation exists. When the situation is moderately favorable, a people-oriented
leadership style is appropriate. Some theorists suggest that situational factors—the type of
task, nature of work groups, formal authority system, personality and maturity level of
followers, experience, and ability of followers—are critical in determining the most effective
leadership style. For instance, when followers are inexperienced and lack maturity and
responsibility, the directive leadership style is effective; when followers are experienced
and willing to take charge, supportive leadership is effective.


One major situational factor is the cultural values of the followers. People who have
different cultural norms and values require different leadership styles. In a highly collective
society such as Japan, the Philippines, Guatemala, or Ecuador, where the social bond
among members is very strong and people look out for one another, a strong patriarch at
the top of the social hierarchy tends to emerge as an effective leader. Such a leader is not

only accepted by the followers but is also expected to protect their interests. China's Deng
Xiao-Ping, whose influence continues even after his death, is a case in point.

On the other hand, in an extremely individualistic society, such as the United States
(Hofstede, 1980), where the social bonds are loose and individuals are expected to take
care of themselves, success and achievement are admired, and a competitive and heroic
figure is likely to emerge as a leader. It is no surprise that John F. Kennedy became such a
charismatic figure in the United States. His energetic and inspirational speeches are still
vividly remembered.


Regardless of culture and time, however, a great leader is remembered for his or her
charisma, which means "divinely inspired gift" in Greek. Charismatic leaders have profound
effects on followers. Through their exceptional inspirational and verbal ability, they
articulate ideological goals and missions, communicate to followers with passion and
inspiration, set an example in their own behaviors, and demand hard work and commitment
from followers, above and beyond normal expectation.

Building on charismatic leadership, Bernard Bass (1985) proposed a theory of
transformational leadership. Bass views leadership as a process of social exchange
between a leader and his or her followers. In exchange for desired behaviors and task
accomplishment, a leader provides rewards to followers. This nominal social exchange
process is called transactional leadership. In contrast, a transformational leader places a
higher level of trust in his or her followers and demands a much higher level of loyalty and
performance beyond normal expectations. With unusual charismatic qualities and
inspirational person-to-person interactions, a transformational leader transforms and
motivates followers to make extra efforts to turn around ailing organizational situations into
success stories. Lee Iacocca, when he took over Chrysler as CEO in 1979 and turned
around this financially distressed company, was considered an exemplary transformational
leader. He was able to convince many people, including employees and the U.S. Congress,
to support the ailing company and to make it a success.


From Mahatma Gandhi to Jack Welch and Martin Luther King to Rudolph Giuliani, there are
as many leadership styles as there are leaders. Fortunately, business people and
psychologists have developed useful, shorthand ways of describing the main leadership
styles that can help aspiring leaders to understand and adapt their own styles and
leadership impact.

Whether you are managing a team at work, captaining your sports team or leading a major
corporation, you leadership style is crucial to your success. Consciously, or
subconsciously, you will no doubt use some of the leadership styles featured, at least some

of the time. Understanding these leadership styles and their impact can help you develop
and adapt your own leadership style and so help you become a more effective leader

Understanding Leadership Styles
The leadership styles we look at here are:
    Autocratic leadership
    Bureaucratic leadership
    Charismatic leadership
    Democratic leadership or Participative leadership
    Laissez-faire leadership
    People-oriented leadership or Relations-Oriented leadership
    Servant leadership
    Task-oriented leadership
    Transactional leadership
    Transformational leadership

Autocratic Leadership
Autocratic leadership is an extreme form of transactional leadership, where leader has
absolute power over his or her employees or team. Employees and team members have
little opportunity for making suggestions, even if these would be in the team or
organization‘s interest.

Most people tend to resent being treated like this. Because of this, autocratic leadership
usually leads to high levels of absenteeism and staff turnover. For some routine and
unskilled jobs, the style can remain effective where the advantages of control outweigh the

Bureaucratic Leadership
Bureaucratic leaders work ―by the book‖, ensuring that their staff follow procedures exactly.
This is a very appropriate style for work involving serious safety risks (such as working with
machinery, with toxic substances or at heights) or where large sums of money are involved
(such as cash-handling).

Charismatic Leadership
A charismatic leadership style can appear similar to a transformational leadership style, in
that the leader injects huge doses of enthusiasm into his or her team, and is very energetic
in driving others forward. However, a charismatic leader tends to believe more in him or
herself than in their team. This can create a risk that a project, or even an entire
organization, might collapse if the leader were to leave: In the eyes of their followers,
success is tied up with the presence of the charismatic leader. As such, charismatic
leadership carries great responsibility, and needs long-term commitment from the leader.

Democratic Leadership or Participative Leadership
Although a democratic leader will make the final decision, he or she invites other members
of the team to contribute to the decision-making process. This not only increases job
satisfaction by involving employees or team members in what‘s going on, but it also helps

to develop people‘s skills. Employees and team members feel in control of their own
destiny, such as the promotion they desire, and so are motivated to work hard by more
than just a financial reward.

As participation takes time, this approach can lead to things happening more slowly, but
often the end result is better. The approach can be most suitable where team working is
essential, and quality is more important than speed to market or productivity.

Laissez-faire Leadership
This French phrase means ―leave it be‖ and is used to describe a leader who leaves his or
her colleagues to get on with their work. It can be effective if the leader monitors what is
being achieved and communicates this back to his or her team regularly. Most often,
laissez-faire leadership works for teams in which the individuals are very experienced and
skilled self-starters. Unfortunately, it can also refer to situations where managers are not
exerting sufficient control.

People-Oriented Leadership or Relations-Oriented Leadership
The style of leadership is the opposite of task-oriented leadership: the leader is totally
focused on organizing, supporting and developing the people in the leader‘s team. A
participative style, it tends to lead to good teamwork and creative collaboration. In practice,
most leaders use both task-oriented and people-oriented styles of leadership.

Servant Leadership
This term, coined by Robert Greenleaf in the 1970s, describes a leader who is often not
formally recognized as such. When someone, at any level within an organization, leads
simply by virtue of meeting the needs of his or her team, he or she is described as a
―servant leader‖. In many ways, servant leadership is a form of democratic leadership, as
the whole team tends to be involved in decision-making.

Supporters of the servant leadership model suggest it is an important way ahead in a world
where values are increasingly important, in which servant leaders achieve power on the
basis of their values and ideals. Others believe that in competitive leadership situations,
people practicing servant leadership will often find themselves left behind by leaders using
other leadership styles.

Task-Oriented Leadership
A highly task-oriented leader focuses only on getting the job done, and can be quite
autocratic. He or she will actively define the work and the roles required, put structures in
place, plan, organise and monitor. However, as task-oriented leaders spare little thought for
the well-being of their teams, this approach can suffer many of the flaws of autocratic
leadership, with difficulties in motivating and retaining staff. Task-oriented leaders can use
the Blake-Mouton Managerial Grid to help them identify specific areas for development that
will help them involve people more.

Transactional Leadership
This style of leadership starts with the idea that team members agree to obey their leader
totally when they take on a job: the ―transaction‖ is (usually) that the organization pays the
team members in return for their effort and compliance. You have a right to ―punish‖ the
team members if their work doesn‘t meet the pre-determined standard.

Team members can do little to improve their job satisfaction under transactional leadership.
The leader could give team members some control of their income/reward by using
incentives that encourage even higher standards or greater productivity. Alternatively a
transactional leader could practice ―management by exception‖, whereby, rather than
rewarding better work, he or she would take corrective action if the required standards were
not met.

Transactional leadership is really just a way of managing rather a true leadership style as
the focus is on short-term tasks. It has serious limitations for knowledge-based or creative
work, but remains a common style in many organizations.

Transformational Leadership
A person with this leadership style is a true leader who inspires his or her team constantly
with a shared vision of the future. Transformational leaders are highly visible, and spend a
lot of time communicating. They don‘t necessarily lead from the front, as they tend to
delegate responsibility amongst their team. While their enthusiasm is often infectious, they
generally need to be supported by ―details people‖.

In many organizations, both transactional and transformational leadership are needed. The
transactional leaders (or managers) ensure that routine work is done reliably, while the
transformational leaders look after initiatives that add value. The transformational
leadership style is the dominant leadership style taught in the "How to Lead: Discover the
Leader Within You" leadership program, although we do recommend that other styles are
brought as the situation demands:

Using The Right Style – Situational Leadership
While the Transformation Leadership approach is often highly effective, there is no one
―right‖ way to lead or manage that suits all situations. To choose the most effective
approach for you, you must consider:
     The skill levels and experience of your team
     The work involved (routine or new and creative)
     The organisational environment (stable or radically changing, conservative or
     You own preferred or natural style.
A good leader will find him- or herself switching instinctively between styles according to
the people and work they are dealing with. This is often referred to as ―situational
leadership‖. For example, the manager of a small factory trains new machine operatives
using a bureaucratic style to ensure operatives know the procedures that achieve the right
standards of product quality and workplace safety. The same manager may adopt a more

participative style of leadership when working on production line improvement with his or
her team of supervisors.

Appendix 1: Starting Your Own Business Consulting Firm

      How to start a part-time or full-time consulting business for little or no money
      Information about business matters affecting consultants including insurance, licenses, legal
       structures, etc.
      Items to include in your business plan
      Choosing a name for your consulting business
      How to set up an office for your consulting business
      Sources of start-up financing if you want to spend more on your consulting business (e.g. leasing
       an office instead of working from home)
      Pricing your consulting services, with information on:
           o How to set your hourly rate
           o Daily rates
           o Per project fees
           o Monthly retainers
           o Pay for performance
           o How to invoice clients
           o Getting a deposit before you start a project
           o Getting reimbursed for expenses
      What to include in a client contract or agreement
      How to select strategic partners
      Finding potential clients for your consulting business
      How to market your consulting services effectively through
           o Advertising
           o Networking
           o Direct contact
           o Free promotional opportunities
      What you need to know about preparing proposals for consulting work
      How to make a sales presentation to prospective clients
      Helpful samples for your consulting business (sample contracts, sample invoice, sample letter of
       proposal, and more)


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