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Ch 1 Notes.docx

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Wilfrid Laurier University
Valerie Irie

Environmental Business Models LO -understand the relationship between the firm and its external environment  course model  diamond e model -describe what an external analysis is -explain how to do an external analysis  PEST factors  Porters five forces model  Data sources -Understand the benefits and challenges of doing an external analysis -external market and internal market need to be understood and corroborated in order to achieve success with regards to strategy, vision, etc -external factors are economic, political, technological and social factors -internal factors are marketing, operations, finance, and human resources Critical Success Factors  achieving financial performance (not a singular goal) -more of a result and interdependent of the other factors -measured through profits, healthy equity, strong cash flow, determines life of the business -if not profitable, can end the life of the business  meeting customer needs -increasing satisfaction levels, meeting their demands, need to know what they want -research needed to anticipate what customers need, need to understand their needs, and need to deliver on their needs -ensure consumer loyalty, trust, reputation, positive relationship, small ticket items keep buying, big ticket item spread the word and gain new customers through referral, creates recurring revenue  building quality products and services -if company understands the level of quality point the customer wants and can deliver on it consistently and reliably, creates trust, reputation, loyalty with consumers, believe quality will be there and rely on it -customer chooses quality point with regards to price, expect that level of reliability with price and quality in mind  encouraging innovation and creativity -definition of quality does not sit still due to constant advancement in technology and innovation -only way to meet customer needs and quality in order to be competitive is to encourage employees to meet innovative demands of consumers -can be major as in direct changes in product design, ect, or can be a change in the shipping process or production to allow for changes in price etc  gaining employee commitment -an employee achieving their own personal goals while satisfying company goals -when they're in a job where they can reach their goals and conversely company goals they feel energized -put up a comfortable, safe and positive workplace contributes to their loyalty and productivity and happiness -at the end of the day people are the foundation upon which your business is built, when they are energized and happy they are productive, creative, the product is created with a distinctive level of care which in turn leads to quality and consistent level of goods produced -disinterested employees can in turn lead to inconsistent quality of work and productivity of goods and services -more committed employee leads to better customer services, creates a sense of personal accountability among employees which can lead to success  creating a distinctive company advantage -carved out something in your industry that draws customers to your service over that of the competitions -although unique is wanted, but must be unique in a way that still appeals to the mass consumer market -ideally something that still meets customer needs more than competition and is unique, if nothing unique and advantageous about product then it turns into simply a price war -allows you to position price and quality of product in a way that generates profit Diamond E framework  identifies key variables to be considered in strategic analysis  whether an existing company or starting up, a valuable tool to determine effectiveness  management preferences -they have natural biases, tendencies due to who they are as a person -certain desires and approaches to how they act in a business sense (i.e. aggressive, optimistic, etc)  organization -structure(worldwide divisions), capabilities -leadership style, culture(positive culture, risk taking, creative, etc)  resources -human (people and skill sets) -financial -capital Strategy  what opportunities the business is pursuing -determines needed resources, organizational capabilities and management preference -need to be clear what are pursuing  critical thinking variable  each variable linked to the rest  any variable can either drive or constrain strategy  Principal Logic- consistency or alignment -where strategy is in sync with external environment and in sync with the rest of the diamond valid, very difficult to mesh perfectly  First task- deal with strategy environment linkage -asses forces at work and their implications the more aggressive the management team, the more ambitious their strategy is -difficulties can arise when different management levels have different theories on strategy i.e. some aggressive some not -some companies place high influence on small group of managers decision while some farm out to as many people as possible -a particular leadership style or structure can either positively influence a strategy or hold it back -need to understand the resource capabilities when determining business strategy, depending on scale of businesses and resources available strategy will vary dramatically, lack of resources can hold company back Principle Logic Example: P&G 2000(inconsistent) -new CEO came in very aggressive -launched multiple new products -stretch resources too thin, misread environment and production capabilities and consumer demands -new CEO came in and pulled back new products, stuck to mainstay products and did not overstretch resources cut back, led to stable growth onwards IKEA -CEO vision well built and decent furniture at mid range prices -read the market and his read of the organizational capabilities matched his management preferences, experienced stable growth -importance of consistency between all variables (i.e. Vision, environment, production capabilities) -NOTE: ABSOLUTE ALIGNMENT IS NOT REALISTIC Strategy-Environment Linkage -read external environment and make appropriate changes to the internal environment -need to analyze the external environment and understand its state to be able to properly compete in the market • First task: Deal with strategy-environment linkage • Assess forces at work and their implications Examples: - Digital Camera Market: Canon vs. Kodak - Canon first to invest in digital technology, niche market - Read environment and decided to invest in market - Worked very well, as forerunners established a strong early market position and stole large percentage of market from Kodak - Kodak never fully recovered Process of scanning and evaluatingthe external environment How managers determine opportunities(positive external trends or changes) and threats (negative external trends or changes) Firms face multiple environments: specific environment; general environment; affects all businesses affects industry participants -need to look as forward as possible to anticipate customer needs -evaluate trends to see if it is an opportunity (new customer base) or a threat (loss of revenue) Specific Environments -industry is the group of companies you compete against for resources, customers, ect -for some companies only compete in one industry, while some (i.e. Conglomerates) have to consider the state of various industries How to do an external analysis General environment PEST model – considers political, economic, social/demographic, and technological factors Identifies general trends and changes Specific environment Porter’s Five Forces - analyzes five important sources of competitive pressure and intensity; predicts profitability of industry Takes a look at one particular industry Look for data, statistics, trends, forecasts, expert opinions, etc. PEST: Political-legal -how much influence in a country government has over what a business can or cannot do Laws/Regulations -product label (i.e. Nutrional label, French-English) -examples such as minimum wage laws, employee safety laws -how many businesses can exist in one industry Taxes -change corporate taxes to bring companies to certain areas Trade agreements -increase trade with certain areas of the world -tariffs: taxes imposed on products imported into our domestic area, protect Canadian manufacturers Political System -need to determine if the system is relatively friendly to business and as such whether to operate there -i.e. Canada open to business, Socialist countries more restrictive -management needs to determine if operating in a specific country will be effective Political Stability -need to understand if gov’s way of operating will stay in place in the future, if not can hurt business if unstable and negative changes occur Government can create incentives, constraints, or support/bail out when needed Affects uncertainty, risk, and costs faced by firm Economic Growth -Aggregate output, GDP, all factors -want to make sure economy is somewhat healthy before launching a venture Stability -is it predictable? -as a manager can you effectively plan for the future with regards to finding suppliers, effective costs, etc -inflation increase in prices of consumer goods -unemployment high, little spending, less chance to make profits -70% of money put into economy by consumer spending (individual purchases) -must decide whether product requires a lot of money i.e. High income and if that is feasible to consumers during current economic state Whether economic conditions are going to boost or harm your sales is main concern -inflation increase in prices of consumer goods -unemployment high, little spending, less chance to make profits -70% of money put into economy by consumer spending (individual purchases) -must decide whether product requires a lot of money i.e. High income and if that is feasible to consumers during current economic state Whether economic conditions are going to boost or harm your sales is main concern Social-PEST -not quite as tangible, more like unwritten things that people either support or do not, hard to understand but very influential -varies greatly by geography Customs -demographic data can accurately predict customer preferences and taste, very influential and useful for a business -at the end of the day these factors influence behavior i.e. How we spend our money, time, interests, etc. -beliefs and societal values can and will change over time -worker attitudes (changed from long-term loyalty and fam
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