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2 - External Analysis Models - Lecture Notes

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Sofy Carayannopoulos

External Analysis Models Wed, Sept 11, 2013 Critical Success Factors  Achieving financial performance o What is it: Making a profit o Is it just about making money: market share, grow profit, compare to your competitors o You earn a profit but that you are competitive and better then your competition  Meeting customer needs o Providing good customer service o Providing a good product o Giving the customers what they want now and anticipating what they want o Understanding your customers o Related to achieving financial performance (meet customer needs = more money)  Building quality products and services o Setting standards for quality and meeting them o Reliable useable and safe products o Ford Focus vs BMW (don’t have to be better then the competition) o Producing a level of quality and service that gives them value for their dollar o Related to meeting customer needs (good quality = more customers)  Encouraging innovation and creativity o Creating products for the future and anticipating what customers will need/want o Creating customers wants o Innovative on how you produce it (cheaper, more ethical) o You can be innovative and creative with the way your produce quality products o People will want to buy “new” products, therefore financial performance  Gaining employee commitment o Committed employees to the company o Best quality employees and passionate employees o Will stay for a long time o Proud to work there and will stay o Gained by respect, incentives, value them o Good employees will want to create new products that are innovative and creative o Google offices!!  Creating a distinctive competitive advantage o Being better than the competition o A unique space among the competition that you can product/they cant imitate o Holding patients, have more money, better employees, key supply component o Maintain the advantage Diamond-E Framework Management Preferences Environment Organization Strategy Resources  Shows relationships between business and environment  Shows internal organization and the environment and the two are connected  Management Preferences o What your managers prefer and the way they manage the organization o Set standards for how employees will work o Come up with strategies and ideas o They have bias and this influences how they perceive the environment o **CASE ANALYSIS ALWAYS CONSIDER THE DECISION MAKERS PREFERENCE (THEIR MANAGER STYLE)  Organization o Culture, capabilities and the leadership o Management preferences influences culture (they set the tone) o Culture: determines the unspoken rules, how they do things o What managers are strong in is what they develop in the organization o SWOT: strengths, weaknesses (organization) opportunities, threats (environment)  Resource: o Financial, psychical and human resources o These determine what they are capable of doing (cant create products without a factory and people) o Bias of management determines what resources they acquires  Strategy: What opportunities the business is pursuing o Determines needed resources, organizational capabilities and management preferences o Any variable can either driver or contrast strategy o If there a risky strategy, managers have to be risky as well o **CONSERVATIVE VS RISKY** o The critical linking variable in the model (connects organization with the environment o First task – deal with the strategy-environment linkage o When looking at the environment, you have to look at todays conditions and TOMORROWS conditions o Assess forces at work and their implications (ie driving, looking ahead)  Principle Logics – consistency or alignment o Consistency internally leads to performance (internal capabilities risk are not consistent with the strategy you are trying to execute)  Each variable impacts and is impacted by the rest  Have to have resources and mangers to implement strategy o Alignment externally ensures strategy right for the given environment (strategy isn’t right for given environment) – impossible to have perfect alignment  Doesn’t matter if you have a good strategy but it will mean nothing if it isn’t right for the environment o Warning: Environment is always changing  Is it in alignment with environment?  Is strategy consistent with internal variables? External Analysis  Process of scanning and evaluating the external environment  How manger determine opportunities (positives external trends or changes) and threats (negative external trends or changes)  Firm faces multiple environments; o General environment; affects all businesses (interest rates) o Specific environment; affects industry participants (competition) How to do External Analysis  General Environment o PEST model – political, economic, social/demographic and technological factors  Specific Environment o Porter’s 5 forces, 5 important of competitive pressure and intensity; predicts profitably of industry  Look for data, statistics, trends, forecasts, expert opinions, etc PEST – General Environment s  Political-Legal o Laws, regulations (Australia: cigarette packages were all the same color; cell phone industry) o Taxes (personal and corporate, tobacco and alcohol taxes, personal taxes means less money for us to spend on other stuff) o Trade agreements or conditions (NAFTA, remote controls being duty free in USA, cheaper to expand into USA) o Political system (USA; let businesses do there thing. Canada; more involved, more rules and regulations, more competition from government [ie alcohol and hospital]) o Political stability (Canada, USA; stable politically, organizations like that because it is predictable) o Government can create incentives, constraints or support/bail out when needed (banks were bailed out) o Affects uncertainty, risk and constraints/costs faced by firm o **HEADLINE THAT REPRESENTS A NEW LAW THAT CAN BE A THREAT/OPPORTUNITY**  Economic Factors o Economic growth – aggregate output (total quantity of goods/services), GDP (total cost of the products) and standard of living (Affects our standard of living) o Trade balance – importing vs exporting (More import then export, then there is trade deficit, export more the import then there is a trade surplus) o National debt – government borrowing (the more debt there is, they are competition with us to borrow money, affects interest rates) o Economic stability – inflation (price of stuff goes up but income stays the same, purchasing power goes down) o Interest rates – time value of money (high interest rates, costs more to borrow money and expand, as consumers we buy less [housing, credit card]) o Exchange rates (Canadian dollar is high, Canadians are happy because they can purchase things cheaper, Canadian manufactures trying to sell in the USA) o Influences costs, potential sales and financial uncertainty  Social Factors o Customs, values, attitudes and demographic characteristics – society, thy are different from one region to the next (gun laws in the states) o Includes customer preferences – (ex: Big Mac, smoking) o Influences worker attitudes and behaviors – it is personal pride whether or not your company does well, some places 9-5 is the norm, sometimes its later o Influences stands of business conduct – bribes, kickbacks are the way you do business, other countries you will be charged/fired  Ethics, social responsibility, stakeholders, management – how sensitive should I be to the environment, managers come from that society or society puts pressure on managers  They can change (ex: smoking in movies) o **Affects how we live, work, consume and produce**  Technological Factors
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