We understand economic growth as a process that contributes to raising the standard of living of a country’s population. It involves an increase in the value of the production of goods and services, resulting in rising incomes.

It should be noted that growth in no way excludes decline in some sectors. This is because attention is paid to the cumulative effects of economic processes that still achieve a positive result.

Difference between economic growth and development

Sometimes the terms development and economic growth are used interchangeably, which is not correct. These phenomena can be combined, but there are important differences between them. Economic development is a broader concept that refers to qualitative, non-measurable changes that improve the quality of life.

Economic growth, on the other hand, refers to quantitative values – the most commonly used measure is Gross Domestic Product (GDP). Its value depends on the demand for goods and services as well as the supply and efficiency of production factors (labor, human capital, technological progress, etc.).

Types of economic growth

We can distinguish several types of economic growth:

• Extensive – is driven by technological progress and increased investment in labor, as well as the allocation of resources to more efficient industries,
• Intensive – occurs with innovation, is usually associated with extensive growth, its results are long-term and herald a significant intensification of the ability to produce goods and services,
• Stabilized – means steady, uniform growth in the GDP index and the total use of production factors,
• Nonstabilized – the GDP index grows unevenly, which results in costs, waste, higher unemployment, and reluctance to invest,
• Sustainable – we speak of it when a country’s economic conditions are either approaching or already in a state of equilibrium. A state of equilibrium is considered to be, for example, the balance of supply and demand and the achievement of comprehensive economic development, including agriculture, services, tourism, infrastructure, etc,
• Unsustainable – this is the opposite situation to the above, the value of GDP is increasing, but in individual sectors, there is no uniform development.

What are the limits of economic growth?

A high GDP per capita is generally desirable, as it indicates a prosperous economy and society. However, it is not easy to achieve and maintain such a level, as there are many barriers and constraints to economic growth. They are as follows:

• Unfavorable demographics, such as an aging population. If a country has more people of post-working age and fewer people of pre-working age, the level of goods and services produced will be negatively affected,
• The political system and inappropriate decisions made by those in power can slow the growth of GDP,
• Pollution – today we are obliged as a society to take care of our environment. Increased production always involves the exploitation of natural resources, which should be limited. This in turn can lead to a declining growth trend. We should also mention non-renewable resources (oil, natural gas, precious metals, etc.), which are of great economic importance. As they become scarcer, the dynamics of economic growth is threatened.
• Unequal income of the population – mostly better earnings do not extend to the general population, only to a selected part of it. Unequal distribution of income can eventually begin to reflect in declining consumption and, paradoxically, sometimes lead to the deterioration of people’s material situation.

What is an economic miracle?

Very rapid and strong economic growth is sometimes informally called an economic miracle. It happens very quickly and unexpectedly. Below are some examples of countries that have experienced this phenomenon in their history.

Examples of economic miracles

• Japan

After World War II, Japan achieved economic growth of nearly 10%, which was described as an economic miracle. U.S. efforts to industrialize, decentralize the economy, and increase exports helped improve the living conditions of the people there. The reason for this was the fear that otherwise Japanese society would move to the side of the Soviet Union.

Groups of entrepreneurs, known as keiretsu, who decided to work together to improve the industry also played an important role. Technological progress and an increase in employment helped companies operate more efficiently and raise their incomes, which boosted the GDP index. The Japanese economy is now one of the most dynamic in the world.

• Germany

Germany had price controls in place before World War II began, and trade in certain goods was restricted as early as 1939. This was a common practice in countries under totalitarian rule, such as Nazi Germany. Such measures were not beneficial to society and eventually led to food shortages, inflation, and a decline in the production of goods and services. The situation changed after the war ended and the country was divided into West Germany and East Germany.

In the western part of the country, repressive policies were abandoned – currency reform was introduced, price controls were removed, and taxes were reduced, which resulted in significant economic growth. The recovery was evident in the increased availability of consumer goods. People became more willing to spend money and production increased (four times within six months of the introduction of the currency reform), which stimulated the entire market.

Summary

High economic growth has many good outcomes that affect the economy and our daily lives. But it can be difficult to maintain it steady so that we can get the most benefits without damaging our environment or some sectors of the economy.

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PThe equity gap refers to a lack of capital or funds for the operation of a particular business. It can occur at any stage of running your company, although it is most likely to appear at the beginning.

This problem most often affects small and medium-sized enterprises. The causes are usually:

• Economic conditions,
• High barriers to entry,
• The possible reluctance of banks to grant loans,
• Lack of experience of the owners,
• Uncertain business history,
• Low initial revenues,
• Inability to meet the requirements for obtaining capital from public funds,
• The attitude of investors, who usually prefer to support initiatives that have a high chance of success or that have been tested to some extent – in the case of young businesses, the risk is much higher, as nobody knows whether the market will positively accept the offered solutions. This is a common situation for startups.

How do you close the equity gap?

There are many ways to close equity gaps. Let’s take a look at them.

Private equity fund

A private equity fund is a form of investment that involves acquiring shares or stocks of selected companies and providing them with financial support through loans, bonds, and other instruments. Investors in a private equity fund can be various entities, such as organizations, financial institutions, companies, or individuals. The goal of the investment is to increase the value of the company and make a profit when it is sold. A private equity fund may support different types of ventures, such as mergers and acquisitions, cost optimization (e.g., implementing lean management), organizational changes, the purchase of real estate, equipment, and others.

Business angels

Another option is to use the help of business angels. These are usually private investors and businessmen who provide financial support to small, growing companies and startups. Apart from financial benefits, companies can expect strategic advice and expanded business contacts. The condition, however, is transferring a certain portion of the company’s shares. It is worth taking the initiative and looking for people in organized networks of business angels – EBAN or Cobin Angels. From time to time, there are also competitions for startups and innovators, where you can present your ideas and attract the interest of investors.

Crowdfunding

It takes place on specially created crowdfunding portals, where you can put an offer on your project, or business idea. For example, equity crowdfunding allows you to use listed financial instruments (shares, bonds). Investors who often seek to diversify their investment portfolio may also like to use such a solution.

Summary

Before you start looking for additional funds from investors, or grant programs, you should thoroughly review the situation in the company. Only after looking at the hard data will you be able to assess whether you really have the equity gap and where the problems lie. Getting the big picture will help you determine what you need and where to go for help.

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Investment risk is the probability of incurring a loss or making a gain as a result of an investment decision. Every investment involves uncertainty, and the return depends on the level of risk we are willing to take. For example, government bonds are considered to be the safest financial instruments, but at the same time, they usually provide little financial return.

Examples of investment risks

Here are some key examples of investment risks. Let’s take a look at them.

• Financial and business risk

Financial risk determines the likelihood of a situation in which an entrepreneur is unable to repay loans or other financial obligations. Business risk, on the other hand, is highly correlated with the former but relates to the inability to generate sufficient revenue to achieve strategic goals.

• Market risk

This is a situation where changes in market conditions can bring investment losses. These can include not only price fluctuations, inflation (reducing real profits and increasing the cost of living), and changes in exchange rates but also unforeseen situations like armed conflicts or epidemics.

• Macroeconomic risk

It may also be associated with market risk. It usually refers to events in the political context, the general economic situation in a country or region.

• Interest rate risk

A change in interest rates affects the value of financial instruments. For example, rising interest rates cause the price of bonds to fall.

• Liquidity risk

It involves the inability to monetize a financial instrument quickly (lack of a willing buyer or seller) and the risk of bankruptcy, which can result in the loss of much or all of your capital.

• Concentration risk

If you invest your capital in only one financial instrument, you risk losing the entire amount.

• Management risk

The ineffective strategy of the company whose shares you have purchased negatively affects their value.

• Risk of default

Refers to so-called debt instruments (e.g., bonds) in which one party to the transaction agrees to return the entrusted capital by paying interest on an issued security.

• Cash flow risk

Includes fluctuations in the value of cash flows associated with inflows, outflows, and flows of financial instruments.

How to manage investment risk?

It’s unlikely to eliminate the risk entirely, you can only reduce it to the minimum possible financial loss. How to manage investment risk?

• Start with virtual money – if you’re new to investing, it’s a great way to get started without putting any money down. The Stock Exchange offers a virtual stock market simulator with live quotes so you can learn without taking unnecessary risks,
• Diversify investment instruments – you can allocate your resources in various ways, for example, by investing in different types of financial instruments (stocks, bonds, certificates, precious metals, etc.), by investing in several different sectors of the economy (finance, healthcare, etc.), by entering foreign markets (for example, by investing your capital in real estate abroad), by buying shares in different companies,
• Average out costs – for some time, regularly invest a certain amount of money in stocks. A gradual investment will minimize a significant financial loss in the event of a decline,
• Set boundaries – it may seem trivial to control your emotions and set an amount you will not exceed when buying financial instruments. However, making investment decisions is highly dependent on your state of mind and the feelings that are driving you at the moment. In the case of the stock market, strong emotions are usually a bad advisor,
• Keep an eye on your financial situation – invest only the amount of money you are ready to lose. Don’t take out loans for investments, as you could be in serious financial trouble if you fail,
• Talk to an investment advisor – if you do not feel confident enough and you want to get the opinion of an experienced person in the field of investing, you can turn to an investment advisor who will match the appropriate strategy to your capabilities and expectations,
• Beware of investment scams – brokers do not always act according to the law. While promising high returns and profits, they may persuade you to invest in unprofitable products or services or phish for personal information. The risks can be many, so you must always carefully analyze any offers,
• Choose long-term investments – if security is important to you, choose long-term investments. Determine the maturity date of an instrument, as this will make it easier for you to make decisions later,
• Buy insurance – the market is dynamic, which can cause big changes and fluctuations in the stock market. However, you can hedge your fiat currency (paper money has poor purchasing power, especially in times of inflation), and you can buy gold or cryptocurrencies so that in case of loss, you will still receive at least a small return on your investment.

Summary

Uncertainty is an inherent part of investing and must be faced by all participants in the capital markets. One important aspect of this field is to have sufficient knowledge of possible investment risks in order to identify them effectively. The other important element is to manage your assets skillfully and to make sound decisions that will allow you to multiply your resources.

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The perfect competition model serves as a benchmark against which we can compare our business. Although it is not a common structure, understanding it provides valuable information about the impact of supply and demand on the market.

The opposite of this model is a monopoly, which is a company that dominates a particular market and dictates the price of goods or services. It attracts all customers who have no other alternatives in this situation. It is usually very difficult for new entrants to enter such a market, so a monopoly company does not have to worry about its competitive advantage.

Features of perfect competition

The attributes that distinguish perfect competition are as follows:

• Low barriers to entry and exit

Entry barriers refer to, among other things, regulatory requirements that must be met for a firm to enter an industry (permits, licenses, concessions, etc.), start-up costs, and technological requirements. Exit barriers, on the other hand, refer to factors that reduce the profitability of leaving an industry while increasing the costs associated with such an activity. If we’re talking about low barriers to entry and exit, it means that we can set up a business easily and quit without much loss.

• Information availability

Producers, sellers, and customers have access to information about prevailing market conditions – pricing strategies, demand and supply of goods, and their quality. Consumers realize that the goods and services offered are homogenous. They make rational purchasing decisions.

• A homogenous and extensive market

It means there are a lot of companies in the market selling similar products. Since the products have similar features, customers mainly rely on price. Demand and supply are equal, and all companies that fit this model have relatively small shares.

• Firms are price-takers

Therefore, companies must accept the prices that prevail in the market. They also have no control over their formation – they cannot lower or raise them.

Pros and cons of perfect competition

Pros:

• Low barriers to entry and exit,
• Customer focus (they have strong bargaining power),
• Companies compete by lowering prices and to be profitable, they must strive to optimize costs and reduce waste.

Cons:

• It usually exists only in theory and does not accurately define economic realities,
• Lack of innovation – companies’ offerings are almost identical, so there is no room for improvement and development,
• The break-even point of businesses is less than 0 (there are too many competitors in the market), which means lower profits,
• It’s impossible to scale the business, i.e., to maximize the benefits of the company,
• High competition – customers have many choices.

Examples of perfect competition

Several industries in the market are close to the described model of perfect competition. Take a look at the following examples.

• Agricultural market

In some countries, agricultural products are similar, e.g., wheat, rye, barley, and soybeans. Starting such a business is quite easy – it requires buying land and starting to grow crops (assuming you know how to do it). The prices of the products are comparable to each other and are mainly influenced by factors beyond the farmers’ control – weather conditions, imports and exports, yields, and demand.

• Currency markets

The value of any currency depends on external factors. Access to information about the stock market is widespread, and transactions are uniform. Barriers to entry are also low – if you want to start investing, all you need to do is set up a brokerage account. You don’t need much money to get started.

• E-commerce industry

Another example is e-commerce, which is growing rapidly. The barriers to entry and exit for sellers are low – with little investment, virtually anyone can start or quit this type of business. The availability of different offers, the best prices, and the necessary information about products and services is very wide. In addition, there are several people engaged in this business and consumers who choose this form of shopping.

Summary

You should remember that the model of perfect competition is a construct that represents an idealized market situation. The reality is quite different, and not all of its features are observed in various companies, which shows the imperfection of the modern economy. Nevertheless, it can be an interesting way to analyze your market environment.

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The concept of the middle-income trap describes a situation where a selected country has experienced significant progress and economic growth but struggles to achieve the status of a highly developed country. This is particularly evident when the middle class, despite development, is unable to achieve higher incomes.

Causes of the middle-income trap

The most common reasons for the emergence of the middle-income trap include:

• The reluctance of certain groups in the country to make political and economic changes – both politicians and citizens,
• The field of research and development is underfunded or uses outdated technology,
• Declining birth rate,
• Fewer and fewer economically active people (e.g. due to an aging population),
• Speculative bubbles in the market,
• Corruption in politics and business transactions, which also has a negative impact on economic growth,
• The uneven development of individual areas (e.g. concentration on one region only).

High costs of ongoing changes in the country create additional barriers.

GNI per capita

The economic indicator that allows us to determine which countries are in the middle-income trap is the value of gross national income per capita (GNI per capita). According to the World Bank Group’s guidelines for 2022-2023, the following is approved:

• Low-income economy – per capita income of up to $1,085 in 2021,
• Lower-middle income economy – per capita income between $1,088 and $4,255 in 2021,
• Upper-middle income economy – per capita income between $4,256 and $13,205 in 2021,
• High-income economy – per capita income of $12,206 and above.

How to avoid the middle-income trap?

The way to maintain an upward trend in per capita income and economic development is generally to keep a balance between supply and demand. Depending on the country, there may be specific political, social, economic, and cultural conditions, so it is impossible to develop a universal strategy. However, we can distinguish a few measures that may prove effective, and these are:

• Developing a knowledge-based economy,
• Simplifying bureaucracy, which will affect the efficiency of emerging businesses,
• Developing technical, social, telecommunication, and transportation infrastructure,
• Facilitating citizens’ access to knowledge, innovation, and technology,
• Developing a detailed strategy and action plan to achieve high-income country status,
• Focusing on the export market and trade expansion,
• Investing in education that will lead to innovation development,
• Reducing government’s interference in economic processes,
• Shaping international integration with other countries.

Barriers to escape from the middle-income trap

Achieving the status of a developed country is not an easy task, and there are many factors that prevent this goal from being achieved. These may include:

• Lack of investments,
• Poor asset management,
• Difficulty in saving,
• Consumer debts – debts held by individuals in the form of loans (mortgages, student loans, etc.), credit card debts. These prevent people from saving and investing,
• Political instability,
• Economic growth slowdown,
• Escalation of social conflicts due to conflicting interests of different social groups,
• Lack of social mobility – difficulty in moving up the hierarchy, changing social positions.

Summary

Fighting the middle-income trap is crucial to improving the well-being of society in a given country, so it makes sense to adopt policies that promote economic growth and development. This is not an easy task, as it often requires fundamental changes in terms of modernizing the economic and political systems. A good way to do this is to observe other countries’ strategies, evaluate their effectiveness, and, if possible, implement them at home.

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Giffen’s Paradox is a rare economic phenomenon that manifests itself as an increase in the price of cheap goods, which further increases the demand for those goods. For this reason, it is considered an anomaly, since in theory, in such a situation, demand should decrease and supply should increase. The occurrence of this phenomenon indicates the deteriorating state of a country’s economy.

This is the case with basic, necessary for survival goods (also called Giffen goods) – such as bread. Poorer members of society in particular can’t afford to give them up or find cheaper substitutes because they often don’t exist.

Giffen goods

Giffen goods must meet several criteria. These are:

• The amount spent on the purchase of this good should be more than half of the household budget expenditures,
• There are no substitutes or they are much more expensive than the basic good (even after a general price increase),
• They are usually of lower quality than other products.

Giffen goods can be, for example, potatoes, bread, and rice.

Demand and supply in Giffen’s paradox

Giffen’s paradox is related to the income effect. It illustrates how changes in the prices of products affect the demand for those products. Higher prices for basic goods reduce the consumers’ purchasing power, forcing them to limit their spending to basic goods.

While the income effect is more evident, the substitution effect is weaker. Because of the scarcity or lack of substitutes for the Giffen good, the demand for it is even greater.

Giffen’s paradox – examples

Below are some examples from history where different countries had to face the effects of the Giffen paradox.

• Famine in Ireland

The Giffen paradox was first observed and described in the 19th century during the Irish famine. Its cause was the appearance of protozoa, which led to huge losses in agriculture and the death of many people due to infection or lack of food. This was the first time that a trend defying the previous laws of economics was noticed. One of the consequences of this event was a sharp increase in the price of bread, but this did not reduce spending on this particular commodity. People gave up other foods to be able to afford expensive flour products.

• Rising rice prices in Bangladesh

An economic analysis conducted in Bangladesh in 2008 found that the spending of another 8.5% of families fell below the poverty line. This obviously had an impact on the consumption behavior of the population. Rising inflation at the time, resulting from the outbreak of the global financial crisis, is identified as the main reason for this situation. The research showed that despite the significant increase in prices, higher rice consumption was observed among the poorest households. This indicates the occurrence of the Giffen paradox in question.

• Tobacco products

It can be assumed that Giffen’s paradox occurs in the case of tobacco products. Despite a significant price increase, smokers are unlikely to stop buying cigarettes due to a lack of other alternatives. Giving up cigarettes involves a struggle with addiction – physical and psychological dependence on nicotine, which takes time and effort.

Giffen goods vs. Veblen goods

It’s also worthwhile to mention the Veblen effect as the opposite of the Giffen paradox. As we explained earlier, Giffen goods are inexpensive assortments, necessary for people’s daily lives. Veblen goods, on the other hand, are exclusive items, such as jewelry, perfume, wine, and cars. Demand for these goods increases gradually as prices rise, usually among wealthier people. This happens when people want to mark their social position and good financial situation.

Summary

To date, there have been few real-life examples of Giffen goods. Of course, this does not exclude their existence or the risk of their appearance in the future. It requires a dynamic change in a number of market factors, such as demand, supply, inflation, minimum wages, or the availability of substitutes. Moreover, this phenomenon points to the problem of growing social inequality, which mainly affects extremely poor households. Better-off families are less likely to experience the negative consequences of Giffen’s paradox.

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For starters, it’s worth explaining what a business risk is. A business risk is a threat as a result of which a company will not be able to achieve its goals, will suffer financial losses, and that will ultimately lead to its bankruptcy. Risks can be the result of incompetent management, mistakes made primarily by management, as well as external factors that we are not always able to anticipate and respond to appropriately. The most common sources of business risk include:

• Competition in the market,
• Changes in consumer demand and preferences,
• Prices of raw materials,
• Technological and economic changes,
• Legal regulations,
• Relationships with stakeholders, e.g. suppliers,
• Ineffective management and quality of services provided.

To anticipate certain scenarios and prepare a plan of action in case of an emergency, companies should conduct a risk analysis. It involves using specific methods to identify potential risks that could disrupt the operation of the business or the implementation of a project and to determine their severity and likelihood of occurrence. This procedure uses available data such as financial statements, plans, and other necessary documentation. Thanks to this procedure it is possible to detect irregularities at an early stage to minimize or eliminate their negative effects.

Methods of risk analysis

The choice of risk analysis method depends largely on the type of enterprise and its organizational structure. Below we will present some of the most commonly used in practice:

• The Delphi method

This is a qualitative research technique that we have already mentioned in this article. Because of its nature, it can be used in many areas of a company’s strategic analysis.To carry it out, it is necessary to create a team made of analysts and risk management specialists and to gather their opinions on the addressed subject.

It is assumed that the experience and knowledge of the gathered experts will allow them to characterize and evaluate potential risks. On this basis, a risk register containing the most relevant findings is created and a risk management strategy is developed.

• Bow tie analysis

It allows us to identify events that may occur in connection with a particular type of risk. Again, the expertise of team members is usually used here. The most important step is to think about ways to prevent the cause of risk and minimize its consequences.

• Decision tree analysis

Using this method of analysis makes it possible to make key decisions for the success of a given project. The team has a chance to look at the available opportunities, and the likely results of their actions, while avoiding unnecessary business risks. It creates a kind of path of action that should bring long-term benefits.

• The SWIFT analysis

In a nutshell, the SWIFT analysis involves asking the question “What if…?” with respect to the aspect under study. Again, a team of experts must conduct a brainstorming session and assess the risk of failure. What are the steps in this process?

1. Get familiar with the current situation, gather all the important information, talk to your employees, and review documents and reports.
2. Draw up a possible scenario of events (what if…?).
3. Ask yourself what the causes of the scenarios might be.
4. Determine the severity of the consequences of certain events and then the likelihood of their occurrence. The risk matrix mentioned earlier can help you do this.
5. Present the information you have gathered – the risks and recommendations for improving the current situation – in the form of a report.

Risk analysis for e-commerce

Each of the above methods of analysis will allow you to assess the challenges your business may face and suggest ways to prevent crises. Now let’s look at what threats e-commerce faces and what preventive measures you should take.

Potential risks

• Hacking attack, data loss – today there are sophisticated techniques for stealing valuable information and even trade secrets from companies. For example, fraudsters can impersonate decision-makers to obtain sensitive data from employees, or introduce malware to cripple IT systems,
• Unforeseen technical problems and upgrades – they result in unplanned interruptions that negatively impact efficiency,
• Financial penalties resulting from non-compliance with regulations,
• Human error that leads to information leakage,
• Negative UX (user experience) – slow website loading, low-quality product images, incomplete descriptions, poor quality and uniqueness of posted content, lack of contact information,
• Breakdowns, power outages, accidents, economic crises, etc.

Preventive measures

• Ensure you have the tools and IT facilities to combat criminal attempts. Implement a website privacy policy and make your employees aware of the risks involved,
• Regularly check the validity of the programs and operating systems you use, and use anti-virus protection,
• Understand and comply with applicable laws (especially privacy laws),
• Create backups so you don’t lose access to important data,
• Adapt your website for mobile devices,
• Write copy that addresses your audience’s concerns and encourages them to buy,
• Take care of the quality of the videos and photos you post on your site,
• Offer multiple communication channels,
• Pay attention to the graphic design so that it is consistent and user-friendly.

Summary

Protecting and securing a business should always be a priority worth investing in. Ignoring business risks can have a significant impact on your finances or operations. That’s why it’s a good idea to regularly conduct a business risk analysis so that you can stay on top of the situation and respond to changes on time.

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The EVP, which stands for the employee value proposition, is a proposal coming from a given company to attract the ideal candidate and retain those already in the company. It points out the added value that comes with employment at a given place.

The employee value proposition is the reason why people want to work in a particular place. It can be compared to a product but with a slightly different value for the customer.

Benefits of defining the employee value proposition

• Competitive advantage – a well-crafted EVP can differentiate your company from the competition and attract candidates who match your profile,
• Continuous improvement – by preparing the employee value proposition, you can find out which areas are considered attractive by other employees, and which still need some modification. This is valuable information because, thanks to it, you know what to improve and how to become even better in the market,
• Selecting the best candidate for the job – an effective recruitment strategy to identify the best candidate for the job,
• Reducing recruitment costs – this stems from the fact that an attractive offer will quickly attract applicants who match your requirements. Otherwise, you would be forced to pay additional fees for the help of recruitment agencies, posting ads, etc.,
• Communicating the company’s values – by showing that you care about your employees by offering attractive benefits, and perks, you communicate what kind of organizational culture prevails in the workplace and the importance you place on this aspect.

How to define your employee value proposition?

Here are some solutions on how you can use the EVP to not only find the perfect new hire but also improve the relationship with your current employees.

1. Ideal candidate profile

Ask yourself what qualities your ideal candidate should have. Knowing their qualities will help you determine what is important to them in a job and what values they will look for during the hiring process. Will it be the ability to work remotely, specialized training in a particular field, or a convenient location?

2. Pillars of the successful EVP

An effective employee value proposition should have the following characteristics:

• Stability – the company must provide the employee with job security,
• Honesty – any information provided in the recruitment process can be verified by the candidate, so it is not worth lying about reality,
• Emotionality – arousing (positive) emotions in the recipient is the key to establishing a relationship with them, which is what we care about,
• Attractiveness – both the form and content of your EVP should be impeccable and free of any mistakes or shortcomings;
• Uniqueness – in a highly competitive environment, you need to find a way to highlight your uniqueness and convince the recipient that working with you is one of their dreams.
3. What to offer in the EVP?

Most importantly, it should be consistent with your company’s mission and meet the needs of your employees. Components of the EVP might include, for example:

• Salary, bonuses,
• Benefits, for example, stress leave or parental leave,
• Free medical care,
• Remote or hybrid work,
• Pet-friendly office,
• Flexible working hours,
• Courses and training,
• Attention to work-life balance
• Easily accessible location,
• Free parking,
• Travel allowance.

Measuring the employee value proposition

You should regularly check the state of your EVP. Is it still attractive to potential employees, or does it need any improvement?

1. Define your employee value proposition. Make a list of all the current benefits (financial and non-financial) you offer as an employer. It is important that this list is consistent with reality. If you see any discrepancies between what you offer and the facts, make improvements.
2. Once you have highlighted individual EVPs, assign KPIs to them. It will allow you to monitor the situation and your position in the market. Useful parameters will be, for example, the rate of employee turnover, the time it takes to find a new person for a job, the cost of hiring, and employee satisfaction. It is also a good idea to monitor and respond to what is being said about your company on the web and social media.
3. If it’s necessary, improve your EVP.

Collect employee feedback

Human capital is a company’s most important resource. That is why it is so important to take an interest in your employees’ opinions and feelings about the workplace. Even a small comment can point out a problem that has been there for a long time, but you have not been able to see it due to the lack of a broader perspective.

1. You can get information from daily conversations with employees (keep in mind, however, that they may not always be honest).
2. Conduct anonymous surveys among employees and talk to those who have decided to leave the company.
3. Try to find out as much as you can without judging their decisions or accusing them of any particular behavior. Focus on getting answers to the following questions:
• Why do some employees stay and others leave?
• What attracts candidates to my company?
• What do current employees value about the company?
• What other benefits or perks would be attractive to employees?
• Are there areas of my company that need more attention and improvement (e.g., HR)?
• What makes our company better than the competition?

Promote your EVP

Getting the best candidate for the job requires taking initiative. Take care of your communication on social media and show your audience that working for you is a dream come true. Be present on a number of recruitment portals, and post your job ad on your website. Pay attention to how you present the position to the potential recipient. Tailor your communication style to the recipient and don’t forget all the practical aspects that should be included in a good job ad.

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]]> /blue-ocean-strategy-to-increase-profits Thu, 14 Dec 2023 07:37:32 +0000 /?p=66467 Most market mechanisms are the result of the dominance of so-called red oceans. This term refers to the fierce competition between different business entities. Economic conditions are becoming more challenging, and it is more difficult to increase profits. The answer to this situation is the blue ocean strategy. Read on to learn more. ]]> What is the blue ocean strategy?

Applying the blue ocean strategy to your business requires finding an unmet consumer need and creating new demand. Entering a new market guarantees a total monopoly. We can identify three characteristics of this strategic model that set it apart from others:

• Competition is no longer relevant − your task is to create the framework for an entirely new type of industry in which you have no serious competitors,
• Practical approach − a blue ocean strategy is based on research and data, not just ideas, unlike some strategies that prove ineffective when they collide with market realities,
• Differentiation and low prices go hand-in-hand − in the case of red ocean companies, consumers typically choose between value and price. But when a company finds a way to reduce costs while maintaining high quality and usability, it is called value innovation.

How to develop a blue ocean strategy in your company?

Blue ocean leadership grid

To find a promising blue ocean, you need to create your leadership grid. It shows which competitive factors you should put emphasis on and which solutions you should abandon. How to do it?

• Raise

Do you know what features of your products should be highlighted and developed in your industry?

• Reduce

If there are products or services that do not have a significant impact on the company’s success, you can reduce their share.

• Eliminate

Areas of activity that are not essential, but do have the potential for cost reduction should be eliminated.

• Create

You can develop a new product or introduce an idea that will somehow set a new direction for the industry or even create it.

Strategy canvas

It is a line graph showing the competitive factors (on the X axis) and the level of supply (on the Y axis). It allows us to compare our company with the rest of the competitors in the market. The situation of the different players is represented by a value curve. It shows how we can differentiate ourselves from the competition and what we can give up.

Steps to creating the blue ocean strategy

Regardless of the type of business, the following tips will help you move from red ocean markets to new market areas with many opportunities for growth.

1. Examine your situation. Using tools such as a blue ocean leadership grid or strategy canvas, determine where you can take the initiative. Consider external factors, constraints, and your available resources to assess your opportunities.
2. Think what you can achieve. Once you know how it is, you can move on to thinking as if it could be. Identifying customer value and weaknesses in your strategy will widen your horizons.
3. Find ways to achieve this. Develop a strategy that will help you stand out from the competition.
4. Take action. According to the prepared plan, perform the first action in the direction you set.

The pros and cons of the blue ocean strategy

Pros

• It allows you to identify growth opportunities and makes it easier to take advantage of favorable conditions,
• It works in real market conditions and is data-driven,
• Deviates from the classic methods used in red ocean businesses to achieve a dominant position,
• Creates entirely new value for customers that they can’t find among competitors – value innovation.

Cons

• Developing a unique blue ocean strategy is difficult due to market saturation and requires more work and preparation,
• Departing from the classic model means taking a big risk – you may not find demand for your products or services.

Applying the blue ocean strategy has guaranteed many companies huge profits and eliminated most of their competitors. The public has also benefited by receiving unique products or services that meet their needs. Creating such a plan is not easy, it requires an innovative approach and great determination to achieve the goal. However, it is worth seeking and trying different solutions, perhaps they will become a “ladder” to your future success.

Blue ocean strategy examples

Cemex

One of the largest cement producers applied the Blue Ocean strategy by adding emotional value to the promotion of its offer. The product was not attractive in the Mexican market, despite its relatively low price and overcrowding. Multi-generational families usually lived in a single household, and they were reluctant to invest in expanding living space. Resources were much more likely to be used for weddings, baptisms, etc.

The company decided to capitalize on this attachment to tradition and introduced the Paitrimonio Hoy. This was a savings program in which willing individuals would deposit a certain amount of money so that the accumulated funds could later be distributed for a chosen purpose. Usually, the funds were used for family celebrations, but in this case, the funds were to be used for home improvements. When needed, Cemex provided the necessary building materials, thereby increasing its profits and supporting the local community.

Peirce College

Peirce College recognized and tapped into an unmet need among potential consumers. Post-secondary and university education was viewed as the domain of young people. They decided to change that mindset by focusing on working professionals who still wanted to improve their skills and gain knowledge.

Taking advantage of the development of the Internet, they offered distance learning programs, as well as organized courses away from the university campus (e.g., in companies and organizations). The flexible approach allowed people to gain knowledge and gave them the opportunity to advance their careers. In addition, innovations were introduced while avoiding large financial expenditures. Funds to develop the necessary technological solutions were obtained by eliminating programs that were not in demand.

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Aiming to understand the essence of control, this instrument can be defined as the adoption by the cooperating cells of the enterprise of a unified method of thinking and acting, which greatly facilitates the effective management of the entire organization, further improving the rational making of key decisions by management. Thus, controlling is a basic system that is responsible for supporting the management of the company as a whole.

Multidimensional control becomes possible by integrating the organization’s internal mechanisms with the latest technologies that facilitate the collection, gathering and processing of key data. In addition, controlling builds favorable conditions for adopting a slightly broader perspective, focusing on the forward-looking analysis of activities that will ultimately, with the use of appropriate resources of the company, bring it closer to achieving the desired goals.

Controlling includes four functions – planning, control, steering and coordination. Due to their differentiation, pursuing the development of each of these areas provides an opportunity to introduce comprehensive business activities that increase awareness of the potential opportunities and risks of undertaking individual activities.

Controlling functions

• Planning – one of the basic tasks of controlling is to set specific goals for the company, which is closely related to the planning function itself, both in the short term and in the long term. The set goals often take the form of KPIs, making it easier to verify the degree of their implementation at later stages. As a result, it becomes possible to create a vision of the company’s development that is clear to all employees. At the same time, in addition to clearly defining the desired results, the planning function is also responsible for defining the means and timeframe necessary to achieve them.
• Controlling – represents the most obvious of all controlling functions. At this stage, the most important element is to make a reliable comparison of the company’s authentic results with the already developed plan. Such control of the realization of the established goals creates the basis for conducting a multidimensional analysis of deviations to discover the genesis of their occurrence. The next step is to make the necessary adjustments so that the company can maximize the efficiency of its operations in the future.
• Control – the primary activities in this area revolve around making important decisions related to correcting previously established assumptions or goals, such as recalculating original costs or updating adopted budgets. These activities are designed to help the company get to its desired position in the business world as soon as possible. At the same time, the essence of control is still combined with further monitoring of the actual state, focusing on the implementation of the most critical tasks despite registered deviations.
• Coordination – this function is responsible for increasing the efficiency of the overall management system, bringing it to a state where the benefits of coordination exceed the costs of its implementation. Ensuring the coordination of activities increases the comfort and efficiency of work, ensuring that individual units have the right degree of alignment and achieve their own goals in line with the overall interests of the company.

Controlling – examples

INCO Group

The company is characterized by diversified activities hooked on the production of household chemicals, medicinal products, cosmetics, plastic packaging or even publishing activities and real estate trading. Every year there is a noticeable increase in the export of goods to the European Union and Eastern European countries. However, with the increase of its reach, the company clashed with the problem of efficient accounting for such an extensive budget. It turned out to be a necessity to introduce a specialized information system that would enable optimal handling of such a large data package.

INCO Group therefore decided to invest in a specialized controlling tool – the Eureca system, which, based on data warehouse technology, made it possible to create a multidimensional budget. By introducing controlling improvements, the company managed to bring the initially overly complicated budget under control, paying attention to the phased budgeting of departmental costs and direct costs related to production itself. An additional benefit also became the ability to enter plans, and monthly sales forecasts or optimize fixed and variable costs.

The implementation of control solutions has streamlined the necessary planning process, which previously, with such diverse business areas, was extremely complicated. At the same time, the developed database has been integrated with the field system, so that employees performing duties at all levels of the organization have immediate access to key information.

Infinite

Infinite is one of the most rapidly growing companies providing IT solutions to a variety of businesses both in Europe and outside the MENA area. The specifics of the industry and the exponential expansion of its reach led the brand to strongly believe that it needed to include in its activities a comprehensive solution to facilitate the consolidation and reporting of results, which at the same time would meet the ever-increasing demand for information in the area of controlling.

Although the brand already had Excel-based controlling, the dynamics of the tasks at hand required the introduction of a tool that would allow faster work on more parameters. Therefore, Infinite decided to implement the more powerful Eureca system, ensuring the chance to flexibly develop the entire reporting system and efficiently analyze even particularly diverse data.

LS Airport Services

LS Airport Services is described as one of Poland’s largest so-called “handling” companies, currently serving more than 50 air carriers from around the world. Over time, the management of such a thriving brand decided to implement a tool to support important management control. The main motivating factor became the prospect of eliminating constraints hampering the further development of the company resulting from the time-consuming nature of the overall process of creating the necessary reports.

Looking for a comprehensive tool to help optimize the areas of data integration, budgeting, planning, reporting, analysis and forecasting, the company decided to implement the Eureca system in 2020.

With the introduction of a more advanced controlling tool, it became possible to automate budgeting, analysis or reporting processes, leading to an increase in the overall value of controlling throughout the company. In addition, awareness of the real impact on costs among managers has also been strengthened, raising their involvement in the current business situation.

Controlling functions – summary

Properly implemented controlling, additionally supported by modern tools and IT systems, increases the efficiency of the entire company’s operations, enabling precise determination of realistic business objectives. Regardless of the specifics of the industry in which individual companies operate daily, judicious use of the potential of controlling, even in the short term, can accelerate the process of collecting, processing, analyzing, as well as interpreting data key to further business development.

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In the context of entrepreneurship, knowledge can be defined as ideas, concepts, or observations that are used to take action for profit.

The relationship between data, information, and knowledge

Data itself is just a fact that has no meaning without interpretation. Only after it has been processed and organized does it become information that answers the questions like: Who? What? Where? When? In turn, explaining and understanding the information we receive gives us the knowledge we need to make decisions.

Knowledge is an invaluable part of a company’s business strategy because it can create a competitive advantage. It is important to identify weaknesses and knowledge gaps.

What is knowledge management?

No matter what you’re doing, it’s a good idea to have a plan of action. Running a business is no different. A strategy allows you to realize your company’s mission and goals by specifying the direction and type of actions you need to take. Effective knowledge management in an organization makes it easier to capture, share and put knowledge to work.

Codification and personalization

Some of the most common strategies used in practice are codification and personalization. In addition, they are connected to the concepts of formal (explicit) and tacit (implicit) knowledge.

The codification strategy is based on formal knowledge stored in corporate documentation – technical specifications, training materials, reports, analyses, etc. This form greatly facilitates the transfer of knowledge to new and existing employees.

The personalization strategy, on the other hand, is based on interpersonal contact between employees and the exchange of experiences between them. In this case, sharing so-called tacit knowledge takes place during team meetings, conversations, discussions, etc.

Knowledge management in SME

Running a business is a demanding task due to the high dynamics of change and the need for constant development. This can be especially challenging for small and medium-sized businesses whose reach and resources are significantly limited.

The contribution of the SME sector to economic growth is substantial. Small and medium-sized enterprises are often a source of innovative solutions and diversify the market. They have a simplified organizational structure and usually offer niche products and services.

The capital used to develop the business usually comes from the owners’ savings, bank loans, or sometimes from private investors, such as business angels. They employ a relatively small number of people (small companies – no more than 50 employees, medium-sized companies – between 50 and 250 employees) so that they can maintain a close relationship with management and identify with the company’s goals.

Authority is centralized – most decisions are made solely on the basis of the owner’s opinion and experience. Overseeing all areas of the business in this way carries risks – the future of the business depends on the owner’s competence, some areas of management may operate inefficiently, and the intellectual potential of employees may go unnoticed.

The benefits of implementing a knowledge management strategy

Making changes takes time and effort. Putting a knowledge management strategy into practice depends a lot on the attitude of management and employees. However, it is necessary for the development and growth of your company’s potential. How can you benefit from making some changes in your management style?

• Increased efficiency – a coherent and organized management system allows employees to easily access information, improving the quality of their work,
• Better collaboration and communication – using information systems and various channels of communication guarantees greater transparency and building positive relationships within the team,
• Effective decision-making process – access to the knowledge and experience of employees helps to gain the objective perspective needed to take actions in line with the company’s goals,
• Recognizing gaps and shortcomings – as you complete and document the knowledge you have gathered, you can identify additional opportunities to improve your business processes, security – by storing data on servers or in documents, you reduce the risk that the data will leave your organization.

Success factors for implementing knowledge management in an organization

If you don’t know what success factors are, read this article. Again, there are several organizational characteristics that can significantly facilitate introducing positive changes in strategic knowledge management. These include:

• Willingness to continuously improve and learn,
• Willingness to transfer knowledge to others, employee involvement,
• Adapting the organizational structure and technical facilities,
• Emphasizing the value of knowledge and the benefits of using it.

Barriers to implementing knowledge management strategies in SMEs

Changing habits takes time and effort as there are several obstacles in the way. Knowing in advance the limitations that may arise during this process will make it easier for you to deal with them. Here are some possible issues that will require your attention:

• Reluctant employees – senior executives may be afraid of a leak of information that would damage the company’s position, while other employees may be afraid of losing a certain place in the hierarchy,
• Lack of commitment – often stems from or is related to the above-mentioned cause. It can relate to employees and the owners themselves, who will focus more on other activities,
• Lack of time and resources to focus on managing knowledge,
• Distrust in advisors – criticism from an outsider can be perceived as an attack rather than an attempt to help and bring about change.

How to implement a knowledge management strategy in your company?

In fact, implementing a knowledge management system can be challenging for business owners. Lack of information and inexperience can be daunting at first. However, the added value you can gain is well worth it. Keeping the following tips in mind will make it easier for you to successfully complete the process:

• Assess your current situation – examine the effectiveness of the existing system, paying attention to procedures, personnel, technology, and organizational structure. Detecting irregularities will allow you to determine what is worth improving,
• Clarify your goals – once you’ve identified the organization’s weaknesses, set your long-term and short-term goals so you know what you’re aiming for and can monitor your progress,
• Prepare for the changes – adaptation of the new strategy involves the entire enterprise. These changes also have an impact on the company’s employees, who are a valuable asset,
• Take action – the final and most challenging stage is the implementation of the knowledge management system into daily use. This requires not only a lot of money but also a proactive attitude on the part of owners and employees.

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The Ansoff matrix is another useful tool in planning the company’s operations strategy. It can be used to analyze ideas that have the potential to generate large profits. It focuses on four possible directions for product development and business expansion.

4 elements of the Ansoff matrix

1. Market penetration

It involves increasing sales of already existing products or services to increase your market share.

2. Market development

Once the product is mature, the company should focus on introducing it to new markets. This means that the product remains the same, but we are targeting a different type of consumer.

3. Product development

It assumes introducing a new product/service into an existing market.

4. Diversification

In this model, you are introducing a new product into a previously unknown market area. Different strategies involve different degrees of risk – the least safe is diversification due to a lack of experience and information about the new market. On the other hand, penetration into already-known economic relationships can be considered the safest.

How can you use the Ansoff matrix in your company?

Depending on the taken direction, there are many ways to implement a given strategy.

Market penetration

• Try to attract new customers by developing a new marketing campaign, changing or expanding communication channels,
• Offer attractive sales promotions and discounts,
• Introduce a loyalty program, highlighting the benefits of using it,
• You can partner with another company on the basis of a strategic alliance,
• You can also use the BCG matrix to determine which products are worth investing in,
• This is a good course of action if you are just testing the waters in a particular market. As it becomes saturated, you should make changes to your chosen plan,
• There may be risks and threats like competitors within the sector undercutting prices, unfavorable economic conditions, or regulations that may restrict your business in some way.

Product development

• Invest in research and development to create new products and learn about consumer needs,
• Introduce different variations of an existing product,
• Offer additional goods or services to facilitate the use of the main product,
• Ensure high quality of offered goods and customer service,
• Introducing the above changes requires a lot of money to finance technological support.

Market development

• Target your message to different audiences. Conduct market segmentation to understand the demographics, needs, and lifestyles of your audience, Differentiate sales channels,
• Perform a PEST analysis to see what external factors represent opportunities and threats,
• You can expand the scope of activity in the domestic or foreign market – in this case, the challenge may be different requirements for labeling and packaging of offered goods, to which you need to adapt,
• A possible threat is related to the uncertainty of the success of the changes made, due to the unpredictability of the business environment,
• It may take a long time and a lot of money to achieve the desired results, which may not necessarily be successful.

Diversification

• First, check whether you have enough capital to create a new product category – otherwise, the risk of failure is high,
• It is a good solution if the market becomes saturated,
• Open additional distribution channels to attract customers.

The Ansoff matrix − examples

Here is a look at how some of the world’s best-known companies have used each of these solutions in their management strategies.Netflix − market penetration

The company used penetration pricing, a strategy of offering a product or service at a lower price for a limited time. At the end of the trial period, the discount is removed, but consumers who are satisfied with the service are willing to pay the higher price.

Apple − product development

Apple has used the developed operating system to expand its line of offered products. As a result, it is possible to synchronize all the brand’s devices with each other – iPod, iWatch, iPhone, etc.

Spotify − market development

Spotify’s success is based on its geographic expansion, which it has successfully achieved by entering foreign markets. In the case of Asian countries, the company has adjusted fees to the average income of the population. It has also introduced the option to pay for services in cash in the Philippines and Indonesia, where the use of credit cards is rare.

Disney − diversification

Originally involved in the production and promotion of animated films, Disney has expanded its offerings to include a wide variety of product categories – theme parks, a streaming platform, and consumer products such as toys and accessories associated with well-known cartoon characters.

Pros and cons of the Ansoff matrix

Pros

• Simplifying the analysis to four elements allows you to focus on specific aspects that realistically affect business success,
• A well-developed strategic plan based on the matrix and the determination to put it into practice provides a good opportunity for growth.

Cons

• By simplifying the analysis, risks and external factors can be overlooked,
• It may prove inaccurate if the study is limited to only one tool – you will achieve the best results by combining several methods.

Summary

The Ansoff model presented here is a useful tool you can use to find ways to generate more profits and expand your market share. The key to using it effectively is to identify your current and potential markets and implement it effectively in your management strategy.

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