TOPIC 5: ENTREPRENEURIAL COMPETENCIES

DECISION MAKING AND PROBLEM SOLVING

Decision-making may be defined broadly as the process through which entrepreneurs identify
organizational problems and attempt to solve them.

Specifically decision making is part of problem solving in which an entrepreneur makes a choice from
available alternatives to solve a problem.

Decision making or choice making therefore refers to a narrow set of activities involving choosing one
option from a set of alternative options.

It can also be defined as the process by which entrepreneurs respond to opportunities and threats that
confront them by analyzing options and making determinations about specific organizational goals and
courses of action.

Problem solving on the other hand refers to a broad set of activities involving finding out a set of actions
to correct unsatisfactory situation in the organization.

Reasoned judgment- refers to decisions that take time and effort to make and result from careful
information gathering, generation of alternatives, and evaluation of
alternatives

Decisions in response to opportunities - occurs when entrepreneurs respond to ways to improve

organizational performance to benefit customers, employees, and other stakeholder groups

Decisions in response to threats - events inside or outside the organization are adversely affecting
organizational performance

Types of Decisions

Entrepreneurial decisions can be classified as follows:

❖ Strategic decisions:
Long-term decisions which settle the organization’s relationship with its environment e.g. its product,
services or markets. They are the decisions which set the principle goals and objectives of the
organization and strategy required to achieve them.

These kinds of decisions set the general direction of the company.

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 ❖ Operational decisions
These are short-term decisions which settle current issues such as output or pricing inventory level,
allocation of resources etc. They are routine and repetitive in nature.

They tend to receive priority over other decisions because of their importance in ensuring smooth running
and implementation of organizational activities towards achievement of organizational goals.

❖ Administrative decisions
These decisions arise from conflicting demands of strategic and operational decisions. They are
essentially concerned with settling the organizational structural problems e.g. power and authority
structure, communication methods to be used, administrative policies and procedures to be implemented
etc.

Other categories of decisions

Entrepreneurial decisions can also be categorized as programmed decision and non-programmed

decisions.

❖ Programmed decisions
These are routine decision made by entrepreneurs. They are covered by policies, regulations and norms
established by the organization. They do not require entrepreneurs’ inputs or discretions. They are
predetermined decisions for handling repetitive problems e.g. procurement, college admission, bank
loans, dealing with a disciplinary action etc.

Such decisions are routine, virtually automatic decision making that follows established rules or
guidelines.

Entrepreneurs have made the same decision many times before and little ambiguity involved

❖ Non-programmed decisions.
Deal with less routine and complex problems affecting the organization which cannot be handled by
programmed methods. Decisions are made in light of the variables influencing the problems. Such
decisions require active involvement of entrepreneurs to systematically analyze the problem and make a
rational decision of solving it e.g. problems as how to allocate the organization’s resources, what to do
about poor performance or product line or how community relations should be improved.

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TYPES OF ENTREPRENEURIAL PROBLEMS REQUIRING DECISION MAKING

Entrepreneurial decision-making typically centers on the following types of problems:

1. Crisis problem:

This is a serious difficulty requiring immediate action by a entrepreneur e.g. a discovery of a serious cash
flow problem that has a high potential of quickly evolving into losses, employees threatening to go on
strike, major breakdown of the company machinery, shortage of essential inputs etc.

2. Non-crisis problem

A non-crisis problem is an issue that requires solution but does not simultaneously have the immediate
characteristics of a crisis. Many of the decisions which entrepreneurs make centers on non crisis problems
e.g. a factory that needs to be brought into conformity with the new government anti pollution standards
during the next two years, an employee who is frequently late for work, an employee who does not meet
deadlines etc.

3. Opportunity problems.

An opportunity problem is a situation which offers strong potential for organizational gains if appropriate
actions are taken. Opportunity typically involves new ideas and therefore a means for innovation. It
should be noted that opportunity problems involves ideas that could be used rather than real difficulties
that must be solved e.g. fast expanding market share, discovery of new markets, breakthrough in research
and development which can help the organization to improve its products etc.

DECISION MAKING PROCESS

1. Problem definition:

This involves investigating the situation by determining the real causes of the problem (problem
diagnosis). A problem should be defined in terms of symptoms or root causes e.g. management may
define the problem as ‘employee dissatisfaction’ instead of seeing that ‘dissatisfaction’ as symptom of a
deeper problem.

A problem well defined is half solved.

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2. Alternatives generation:

Alternatives are various approaches/possible solutions that may be used to solve a problem. Good
solutions require good alternatives, which should be developed through creativity. Problem solvers must
stretch their minds and seek various opportunities for solving a problem i.e. divergent thinking is required
at this stage to come up with possible ideas for solving a problem.

3. Evaluation and choice:

Alternatives developed should be carefully evaluated and the best one chosen. This requires convergent
thinking. i.e. narrowing down to the best alternative. Evaluation and choice should be made in line of the
organizational ability/ resources needed to implement the decision.

4. Decision implementation:

Once decision has been made by getting a given idea to solve the problem the decision should be
implemented. Therefore as part of the evaluation and choice, the necessary means or resources
availability should be considered.

5. Decision control

This involves follow-up and monitoring of decision outcomes and taking corrective action. If decision
control is to be effective steps must be taken to ensure that the necessary information on performance is
gathered and contingency plans developed to permit changes if the decision does not work out well.

BARRIERS TO EFFECTIVE DECISION MAKING AND PROBLEM SOLVING

1. Poor problem definition:

When a problem is not well understood in terms of its root causes this may affect the collection of
relevant data used for decision-making purposes hence poor decisions.

2. Use of insufficient information for decision making:

Entrepreneurs are sometimes forced to make decision on basis of less data input due to lack of
information required for decision making. This may affect the quality of decisions made.

3. Poor evaluation of decision alternatives:

Lack of proper evaluation alternatives may lead to wrong choices of alternatives. Entrepreneurs should
exercise their rational judgment and make the best choice of alternatives.

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4. Time constraints:

Time pressure on decision-making may cause entrepreneurs to panic and make wrong decisions e.g.
decisions on crisis problems may lead to hurried attempt to find solution to such problems hence poor
decisions.

5. Biased decisions/ effects of individual or group influences:

Some powerful individuals or groups in the organization may influence the decision outcomes for
personal or group gains e.g. a decision deliberately manipulated to favor a entrepreneur or groups in the
organization.

6. Lack of training to entrepreneurs on decision making techniques:

Where entrepreneurs are unqualified or lack critical decision-making skills the decision outcomes may be
defective.

7. Lack of systematic approach to decision making:

This may lead to poor decision output.

8. Lack of employee/group involvement in decision-making:

Where decisions are confined to individuals there may be insufficient input to decision hence poor quality
decision.

9. Poor management of information systems:

A company may lack proper data management system. This may affect storage, processing and
dissemination of information for decision-making purposes.

10. Uncertainties in the external environment;

External environmental changes may affect the nature of information used for decision-making purposes.
E.g. unpredicted economic and political environment may affect the information required for investment
and expansion decision.

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MEASURES TO IMPROVE DECISION MAKING AND PROBLEM SOLVING

Entrepreneurs should take the following steps to improve decision-making and problem solving in their
organizations.

1. The entrepreneur/decision maker should be aware of the various barriers to decision-making and
strive to overcome them e.g. decision biases.
2. The decision maker should be careful to move systematically through decisions making and
problem solving process. Failure to follow all those stages and not giving them attention they
deserve may lead to poor decisions.
3. Information used for decision-making and problem solving should be complete, accurate and
current.
4. A large number of alternatives should be generated through creativity. This will offer
entrepreneurs the best selection of alternatives.
5. The decision makers should consider the use of computers to complement human problem
solving techniques. Computers store a large volume of data and facilitate the analysis and
dissemination of information for people who need them for decision-making purposes.
Computers may also be used for making programmed decisions.
6. The entrepreneur should consider applying relevant mathematical or statistical tools. In
evaluation and choice, management science techniques should be used where necessary to
improve the objectivity and quality of decisions.
7. Group problem solving techniques should be considered e.g. the use of committees or task forces.
8. Forecasting techniques should be used to analyze environmental information needed and to
improve quality of decisions made etc.

TIME MANAGEMENT

Meaning:

It is concerned with planning of time usage in such a manner as to carry out effectively and efficiently all
planned activities. It is synonymous with self-management i.e. how an individual plans and organizes
his/her own activities.

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TIME MANAGEMENT TECHNIQUES (TOOLS)

1. Time budgeting
2. Daily planner
3. Time log
TIME BUDGETING

Time must be budgeted for in order to get the best use from it.

It allows for elimination of any time wastage.

Preparing a Time Budget

This begins by knowing how much time is available for undertaking specified activities and then
allocating time enough for each and every activity to be undertaken. This can be done by the following
procedures:

i. Dividing the total work into projects/units.

ii. Examining each project to determine the level of importance of each unit.
iii. Deciding how much time is likely to be spent on each unit.
iv. Assigning work priorities e.g. urgent, routine, due within one week etc.
v. Blocking out the time you will need for such tasks and spreading the time over specified days
available for the tasks.
DAILY PLANNER

Is a chart, which allows an individual to plan activities of the day in order of importance? More urgent
tasks should come first on the task list. A daily planner enables an individual or entrepreneur to list
specific activities and targets to be accomplished during any given day. A entrepreneur should set
him/herself deadlines for each item on the task list.

TIME LOG

Is the chart, which allows an individual to keep track on time spent on various activities each day? It lists
tasks connected with both regular and unexpected activities of the day.

A review of time log at the end of each day enables individuals to know whether they are spending their
time effectively in achieving planned tasks and to know the usage of their time which can be eliminated.

The following questions should be asked when reviewing the time log

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 i. What did you spend your time on which you should have not?
ii. What patterns/trends are emerging on how you use your time on daily basis?

BARRIERS TO EFFECTIVE TIME MANAGEMENT

❖ Procrastination: individuals’ procrastinate when they put off tasks or delay starting them
because they present inconvenience on their part e.g. Lack of confidence when approaching tasks
or not knowing how to get started.
❖ Individuals’ habits to time keeping and attitudes e.g. lack of self-discipline or poor habit of time
keeping.
❖ Fatigue: this is a state of physical or mental exhaustion. It may be contributed by physical work
conditions e.g. poorly ventilated rooms or congested offices.
❖ Interruptions: unplanned visits by people who want to be attended to or receiving all telephone
calls during office hours may affect sticking to planned activities.
❖ Over delegation: over delegation by bosses or supervisors to other members of staff may affect
time management by the delegates.
❖ Lack of delegation by a entrepreneur
❖ This may result from decision by an individual to undertake all tasks for fear of losing
control; entrepreneurs should assign less important tasks to others in order to manage
their time effectively.
❖ Idle conversation during office hours. Over socializing during office work represent poor time
management on the part of employees.
❖ Prolonged and unnecessary meetings held by entrepreneurs
❖ Unnecessary memos or excessive paper work.
❖ Poor employee motivation leading to go-slows and other unproductive work habits.
MEASURES TO IMPROVE TIME MANAGEMENT

1. Plan and budget tour time properly; develop routines, procedures, and work plan that utilizes your
time more effectively and efficiently.
2. Make good use of time saved.
3. Time wasters should be avoided. Unnecessary phone calls or unplanned visits by visitors not on
appointment should be avoided except under unavoidable circumstances.
4. Programme difficult tasks during task peak hours of efficiency e.g. morning hours
5. Delegate to others the attitude” I can do it better and quicker” should be avoided.

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 6. Be assertive when handling meetings i.e. quick decisions should be made to avoid prolonged
meetings and to deal effectively with interruption during a meeting.
7. Develop appropriate scales e.g. writing and reading faster and combining certain activities which
can be implemented simultaneously.
8. Unnecessary memos and other paper work should be avoided.
9. Communicate effectively -this saves time for consultations on delegative activities.
RISK MANAGEMENT

To be successful, entrepreneurs cannot just assume the risk of a business venture, they must actively
manage risk.

By incorporating risk management into the planning process, the entrepreneur gains a better
understanding of the business system and has a tool for analyzing and managing operational risk. Further,
the rigor this process adds to a business plan has real value to potential investors.

The difference between actual and perceived risk can undermine the entrepreneur's vision hence become
the cause of future failure. Risk that is not perceived cannot be managed and the entrepreneur who wears
"rose–colored glasses" will not plan for contingencies they do not see. If a business plan requires ideal
circumstances to succeed then it will undoubtedly fail, because nothing ever goes exactly as planned.

A successful entrepreneur does not just "assume the risk for a business venture," they also manage the
risk of a business venture. Viewed in this way, risk management is an opportunity for the entrepreneur, as
opposed to a mundane task that distracts from, and imposes limitations on, the core business function.
Risk–managing entrepreneurs will improve their likelihood of survival and produce more nimble
organizations that can quickly respond to changes in the business environment.

Steps involved in a risk management system

1. Identifying risks

Risks may be due to various sources or causes and may include financial, political, economic competition
etc. the risk must be identified.

2. Quantifying risk

Once the risk is identified, it needs to be quantified in terms of potential loss of income and/ or reputation
caused by the actual loss as well as further loss of income until the risk is tacked and eliminated.

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 3. Formulating strategies to contain the identified risk; with an aim to containing the risk so as to
limit the potential losses.

4. Implementing the strategies

5. Continuous monitoring of risk containment

Risk management strategies

Risk Avoidance- a company may decide not to engage in a particular contract or task associated with a
particular risk.

Risk Retention- it is a good strategy only when it is impossible to transfer the risk or based on an
evaluation of the economic loss exposure, it is determined that the value placed on the risk can be safely
absorbed. It should also be considered when the probability of loss is so high that to transfer the risk
would cost as much as the worst loss that would ever occur eg insuring outpatient medical care

Risk Abatement- refers to the process of combining loss prevention or loss control techniques to
minimize a risk. It serves to reduce the loss potential and reduce the frequency or severity of the risk or
loss.

Risk Transfer- it is the shifting of the risk burden from one party to another. It can be done in several
ways but usually done through conventional insurance.

Risk allocation- it is the sharing of the risk burden with other parties e.g. a business decision made when
a company has realized that a cost of doing a project is too expensive and would therefore be funded by
several banks to minimize the risk.

CONFLICT MANAGEMENT

The concept of conflict, being an outcome of behaviors, is an integral part of human life. Wherever there
is interaction there is conflict. Conflict can be defined as a disagreement between two or more individuals
or groups, with each individual or group trying to gain acceptance of its view or objectives over others.
Because people differ in their attitudes, values and goals, conflict among them becomes unavoidable.
Accordingly, the management is concerned not so much with eliminating conflict which would be
impossible, but to contain ti and manage it for organizational and individual benefit.

The personal conflict is more emotional in nature and reflects feelings, anger, distrust, fear, resentment,
clash impersonality, antagonism, tension etc. The organizational conflict, on the other hand, involves

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disagreements on such factors as allocation of resources, nature of goals and objectives, organizational
policies and procedures, nature of assignments and distribution of rewards. This conflict at its worst can
lead to unnecessary stress, blockage in communication, lack of cooperation, increased sense of distrust an
suspicion and this results in lost friendships and reduced organizational effectiveness.

Conflict has always been considered as undesirable so that is should be avoided when possible and
resolved soon if it occurs Both the management school an the administrative school of management relied
heavily on developing such organizational structures that would specify tasks, rules, regulations,
procedures, authority relationships etc., so that any conflict can be avoided and if there is a conflict then
such built-in rules and regulations would identify and correct problems of conflict. The Human Relations
School subscribed to similar theory that conflict is avoidable by creating an environment of good will and
trust. According to William R.Scott, good human relations can prevent conflicts, whether they are
between individual and organizational objectives, between line and staff personnel, between one's ability
an authority etc.

The modern management view is not so negative about conflict. It believes that conflict can be helpful
and constructive if handled properly. As a matter of fact, moderate level of conflict is helpful in such
organizations as Research and Development firms, advertising agencies, public policy groups etc.

MANAGING CONFLICT

Depending on the expected outcome entrepreneurs can manage conflict in either of these ways:

(a) Encouraging Conflict

Where conflict is likely to lead to increased performance and motivation then management can encourage
conflict through competition, through contests or by publicizing results and performance.

(b) Preventing Conflict

Some cases require that conflict be prevented in the first instance e.g. cases where departments are
arguing over use of resources.

Rules and procedures can be used to govern how issues are to be resolved.

(c) Resolving Conflict

Conflicts will always occur in organizations and management must devise ways of resolving them. The
following are a few ways in which management can resolve conflicts.

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The way a given conflict is handled can affect other conflicts and an unresolved conflict continues to
promote future conflicts over similar issues. Truly resolved conflicts may establish conditions that reduce
future conflicts of a similar nature and which help other eventual conflicts to be resolved in a constructive
manner.

• Avoidance

Managing conflict by avoidance is an extreme form of non-attention. In this approach there is no direct
attempt to deal with a manifest conflict. Everyone pretends that conflict does not really exist or if it does
exist, it is such that it will simply disappear. Consequently, in this strategy, the conflict is left to develop
on its own into a constructive or destructive force within the organization.

• Smoothing

This is managing conflict by playing down differences among the conflicting parties and high-lighting
similarities and areas of agreement. The aim is to encourage peaceful co-existence through a recognition
of common interests. Smoothing may ignore the real essence of a given conflict. It is a form of a non-
attention of a minor form.

• Compromise

In this approach accommodations are made such that each party in the conflict gives up something of
value to each other. As a result neither party gains its full desires and the reasons for conflict remain
unsolved.

LEADERSHIP STYLES

1. Democratic/participative/employee oriented

2. Autocratic/authoritative/task oriented.

3. Laissez faire/free reign leadership style

Democratic/Participative/Employee Oriented

Leaders involve employees in decision-making. It is consultative, with decentralized decision making.

It is positively related to subordinate satisfaction. Relationship or participative leadership to performance

is positive but weak.

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It is desirable when the nature of work is simple and repetitive.

It is followed by employee-oriented entrepreneurs. Such entrepreneurs do encourage members to

participate in decision-making. They form friendly, trusting and respectful relationship with group
members.

2. Autocratic/Authoritative Style of Leadership

Autocratic leadership is based upon close supervision, clear and specific instructions and commanding
orders of the superior. It encourages quick decision and making prompt action fosters unity of direction,
avoids splits into factions and guides the recalcitrant and less competent subordinates towards better work
accomplishment. Autocratic leadership relies upon lesser degree of delegation. On the other hand, this
type of leadership demoralizes subordinates, retards the growth of their capacity and lowers the quality of
plans.

Autocratic leadership calls for vesting of the power of decision making in the leader with little or no
consultation of subordinates. In contrast, democratic leadership allows employee participation in varying
degrees for work accomplishment through common consent or consultation. The techniques of direction
are usually molded by these two types of executive leadership which may exit at any level of
management, whether top, middle or bottom.

❖ Leaders make decisions themselves without input from subordinates. This leadership style is
related to employee dissatisfaction; followers are uninformed, insecure and afraid of the leader’s
authority.

❖ Entrepreneur centralizes decision making power in him.

❖ Relationship to performance or output may be positive or negative. However, in most cases it is

positive.

❖ It is desirable where the nature of task is complex and subordinates depend on instructions to
accomplish their tasks.

❖ It is followed by task-oriented leaders. Such leaders direct or closely supervise subordinates to

ensure that tasks are performed to their satisfaction.

❖ An entrepreneur following this leadership style is concerned with achievement of task rather than
support and development of subordinates.

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Advantages of Autocratic leadership:

❖ Quick decision making

❖ Effective for less competent subordinates who have to do very little planning, organizing and
decision making.

Disadvantages of autocratic leadership

❖ It is not focused on employee motivation hence reducing organizational effectiveness out of

frustration, low morale among employees.

❖ It results in suppressed creativity due to more dependence on the leader. Future leaders do not
develop under such leadership.

3. Laissez Faire/Free Reign Leadership Style

Under this style a leader leaves responsibility and decision making to subordinates. He allows
subordinates to operate with minimum supervision. It is based on the principle of non-intervention.
Subordinates consult with the entrepreneur but the entrepreneur is not directly involved in making the
final decisions. It is subordinate centered.

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