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BU111 Lectures.docx

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Laura Allan

Business 10/8/2013 2:35:00 PM September 17 th Diamond-E in a nutshell Organization, resources – what you can do Management preferences- what you want to do Strategy and environment – NEED TO DO PEST Model – Political Laws and regulations  Patents, bankruptcy laws, court law, competition act (options for the customer; not letting one company control market), Taxes Income taxes, consumer taxes, payroll taxes, excise taxes, Trade agreements or conditions Tariffs Political System (Economic) Socialist like Cuba or Mixed economy Political Stability  How stable is the government? Government can create incentives, constraints, or support/bail out when needed PEST Model – Economic Economic growth: Aggregate output: the quantity of goods and services produced by an economic system during a given period Standard of living: total quantity and quality of goods and services that a country’s citizens can purchase with the currency used in their economic system GDP: refers to the total value of all goods and services produced within a given period by a national economy  If going up, the nation is experiencing economic growth Measures all business activity within the nation Tracks the economic growth due to the tracking of economic performance When the GDP exceeds the population, the standard of living will increase as well Trade Balance: Total of countries exports minus the total imports Import: purchases from other countries Export: sales to other countries Deficit: Negative balance of trade Surplus: Positive balance of trade National debt: The amount of money the government owes. Essentially spending more money than the revenue earned Economic stability: a condition in which the amount of money available in an economic system and the quantity of goods and services produced in it are still growing at about the same rate Inflation: the amount of money injected into an economic system outstrips the increase in actual output Unemployment: level of joblessness among people actively seeking work Interest rates: – time value of money Influences costs, potential sales, and financial uncertainty PEST Model – Social Customs, values, attitudes, and demographic characteristics of a society Diversity Customer preferences / trends Worker attitudes and behaviors Standards of business conduct  Ethics, social responsibility, stakeholder management Affects how we live, work, consume and produce PEST Model – Technology Internet – buying, selling and communication with customers Information technologies affects information access, inter-firm cooperation, cycle times, how we work Computer technologies have changed our products and services, and how we design and build Business 10/8/2013 2:35:00 PM September 19 th Most important issues facing Canadian Businesses Value of Canadian dollar Imports affected Skilled labor shortage Natural and physical environment Can’t continue to operate the way we’re operating Outstripping our resources PEST FACTORS: What are the elements of each PEST factor? Examples of each How do they affect businesses? What is the significance of each element Identify and understand if each would represent a threat for a particular industry or business and/or an opportunity for another? New Venture Project Questions: Political  what legal protection do I have and/or what laws/regulations do I have to consider? Economical  Do economic conditions support my business? Social  What demographic and social trends affect my business and how? Technological  what technological forces affect me now and in the future? SO WHAT  what opportunities or threats does the environment posses? Porters Five Forces Caveat: Power and influence of each force will vary by industry Rivalry Among Existing Firms  Industry competitors Buyers Bargaining power of buyers put pressure to lower prices Profitability affected Potential Entrants  Threat of new entrants  Competitors Suppliers  Bargaining power of suppliers Prices for goods can go up  Profitability affected Substitutes  Threat of substitute products or services  Another way of doing things Effect on Profitability Industry Profitability  Competitive rivalry: Put downward pressure on price and going to have to spend more on marketing an innovation to stay ahead  Suppliers: Upward pressure on price of supplies, costs will go up due to having to pay supplier more money  Buyers: Downward pressure on price New Entrants: Threat of taking customers  Substitutes Rivalry Among Existing Firms Most powerful of five forces Results in price competition and increased costs Causes/Factors  Many competitors of equal size/Capability ( if have competitive advantage, not a major issue )  Growth rate of industry: Customers growing is better for companies, less competition due to sheer volume of customers. Less customers drives up the competition since there is not as much customers to work with, fighting for their money.  Low switching costs and loyalty  Products are commodities or are perishable  Consumers are price sensitive  Perishable = HAVE TO GET IT SOLD  High exit barriers – costs of leaving the market Bargaining Power of Suppliers Fewer suppliers less options for buying; have to bargain How important is the supply, is it intrical? Substitutes are not as good, you’ll stay with the supplier you have Supply chain; Is there a danger that the supplier will become a competitor ^ All result in increased bargaining power of the supplier ^ Increased cost of inputs Become your own supplier; don’t have to deal with the supplier anymore  Backward integration Buy controlling interest in your supplier; buy a stock  Now you own them Strategic alliance with suppliers Bargaining Power of Buyers Fewer buyers gives business less options How big are the buyers Concentrated buyers; group of buyers together Switching costs low, they could go to another company Increased bargaining power for buyer Reduces price that you can demand Threat of New Entrants Ease of entry = more intense competition  Long time  Costly  Proprietary knowledge/ technology protection  Barriers: Regulations, licensing Can cause big changes, and take away customers Solution:  Create barriers = technology  Brand Loyalty: loyal customers are not likely to change  First-mover advantage; be different  Access to Distribution Threat of Substitutes How many – viable and quality = INCREASED COMPETITION Puts ceiling on price that can be charged or lose customers Pressure increases as price of substitutes and switching costs decline Convince buyers you are unique Value of Five Forces Model Predicts industry profitability = attractiveness of industry Helps determine whether a firm should enter a particular industry Helps determine whether and/or how a firm can carve out an attractive position in that industry Business 10/8/2013 2:35:00 PM September 24 th QUESTIONS TO THINK ABOUT PEST Identify PEST forces/elements that represent threats or opportunities and explain how they affect a firms ability to achieve any of all of the critical success factors? Porter’s Five Forces Why is the model an improvement over previous concepts of industry profitability? What are the forces and what determines the power of each force? What impact does each force have on industry profitability? How does it affect revenue? What can a firm do to reduce the impact of each force? How does Porter’s Five Forces apply to services? What kinds of strategic questions can you answer using Porter’s Five Forces? New Venture Is the industry a realistic place for a new venture to enter? If yes, then… Can we do a better job than incumbents at avoiding or diminishing factors that suppress industry profitability? Is there a unique position we can pursue? Is there a superior business model that incumbents would find hard to duplicate?  Different business model Sources of Information Library Databases  Standard and Poors NetAdvantage; Industry trends, industry ratio, data  GMID – market share data by company and brand; industry growth data  Marketline – five forces and SWOT  FPInfomart – Canadian data Benefits of External Analysis Makes managers proactive instead of reactive  staying ahead instead of reacting to changing environment (TOO LATE) Provides information used in planning Helps organizations get needed resources  Critical  Come from environment; need to understand the environment Helps organization cope with uncertainty  More uncertainty = risk Improves consistency and performance Challenges of External Analysis Forecasts and trend analyses imperfect  Plan ahead  Keep an open mind; may need to adjust Rapidly changing environment hard to keep up with  Constantly need to assess  Anticipate and adjust to changes Time consuming Paradigms = beliefs  need to see outside of paradigm External Analysis What is the benefit of doing it? th Preliminary New Venture Report – October 11 :  Briefly describe the idea, value, uniqueness, customer, size of market, and revenue model  Competing & substitute products chart, PEST list, 5 forces chart, Google searches  Completion Plan: tasks and completion dates (1/2 page)  Maximum 5 PAGES: double spaced  Submit to turn-it-in and in hard copy Entrepreneurial Process Ideahow to put into action Influenced by PEST Stars with an idea/opportunity then accesses resources Successful only when entrepreneur, opportunity and resources match/fit Opportunity Recognition Idea generation  often paradigm shifts  originate in events r
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