Business Value Creation and the Role of the Entrepreneur
Business Performance and Value Creation
The company fulfills a fundamental role in the functioning of the market economic system, justifying its appearance and legitimizing its role in the creation of the value it generates. Of these, we can highlight the following:
- Builds wealth by producing goods and services, creating employment, and developing the economic system.
- Coordinates, directs, and controls the production process. The employer decides the allocation of resources to production, directing the production process and establishing relationships with other operators.
- Reduces transaction costs generated by the market. Imperfections in costs generate market information, and negotiating contracts can be reduced if the company organizes the activity internally instead of resorting to a market transaction.
- Makes a function of discount or advances the social product. The company anticipates to its production factors the proceeds before the process is consummated and generates monetary income through the process of remuneration to factors, which provides the spending power necessary for the acquisition of products.
- Assumes the risk inherent in the role of the social product to advance reward factors before selling and receiving products.
The employer hires factors at a certain price with the expectation to produce goods that are subsequently sold in the market. Therefore, they assume the risk of not recovering the amount advanced.
To carry out the production and distribution of goods and services, the company has to dispose of productive, human, and financial factors. Additionally, it needs to buy:
- Raw materials or materials needed.
- Have a facility for the activity.
- Have the proper equipment so it can be used by qualified staff.
- Get products to market processed so they can be purchased by consumers with the money they earn from their work or the property of the other factors of production.
All these activities cause actual flows of goods and services to occur in the company.
The Role of the Entrepreneur
The concept of an entrepreneur can be identified with the entrepreneur who launches a business project and the professional manager who makes decisions in the company.
Every professional working in the company has thorough knowledge and is able to make decisions in their specific area of work but lacks an overall vision of the company, which is the characteristic of the employer, as they see the company globally.
The Employer’s Basic Management Tasks
Currently, in their consideration as a professional or manager, you can collect in the following functions:
- Plan: Make plans for the future.
- Organize: Structure and staff activities.
- Motivate: Encourage people.
- Decide: Resolve major issues.
- Coordinate: Combine the different jobs in the same direction.
- Report: Joint reports inwards and outwards.
- Budget: Allocate financial resources to activities.
The employer is, therefore, who plans, organizes, directs, and controls the business activity.
Moreover, given that currently, in medium and large enterprises, this function is performed by a group of people, not just one, we can say that today there is a certain depersonalization and fragmentation of the figure of the employer.
Especially in large companies where capital is subdivided among a large number of small shareholders, the entrepreneur is chosen according to their training and not by their nature of ownership. Under these conditions, the employer assumes not the risk assets but an occupational hazard derived from the possibility of losing their place in the event that the company did not achieve good results for shareholders.
In small enterprises (SMEs) and, especially, in family enterprises, ownership and management of the company often coincide in the same person. In this case, we could identify the employer with the owner to attend to both functions in the same subject.
The use of terms such as “benefit of the employer” states that there continues to be confusion between the concepts of capitalist and entrepreneur. The benefit does not belong to the employer but to the owner of the company. Where the employer is also the owner of the company, they may receive the full benefit or part of it (which would be in the form of dividends if it were a corporation), but not for their condition as an employer but as the owner or partner of the firm.
The Modern Entrepreneur
The current figure of the entrepreneur is associated with a person or, more typically, a group of people who make decisions in the company to achieve the objectives of the various agents that comprise it:
- Owners.
- The managers or administrators.
- Workers.
Their ability to maintain a balance between the interests of each of these groups, so all are sufficiently satisfied with the results obtained by the company, depends on whether the employer can maintain their position and develop their own objectives.