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bu111 lecture 2

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Sofy Carayannopoulos

Lecture 1 Critical Success Factors and EnvironmentalAnalysis Models Critical Success Factors • Achieving financial performance • Meeting customer needs • Building quality products and services • Encouraging innovation and creativity • Gaining employee commitment • Creating a distinctive competitive advantage Diamond-E Framework \\\\ • Identifies keyvariables to be considered in strategic analysis Management Preferences Organizatio Strategy Environmen n t Resource s 09/15/13 5 The internal organization and the environment are tied together Management preferences – behaviour Resources – supplies Internal organization and management preferences (what your managers prefer, what they are bias on, the way they manage the organization – this is important because they influence how the employees will work, what they will do – they make the decisions) Some managers love risk; some don’t Always consider the decision maker, and their preferences Organization – the culture, the capabilities and the leadership Organization and management preference are connected because management preferences influence the culture (how things are done) of the organization SWOT – strengths, weaknesses, opportunities, threats Opportunities and threats come from the environment Resources – financial, human, physical Resources determine the culture and capabilities – what buildings, facilities we have, and how much money we have determine our capabilities Resources that exist in the organization have an influence on what management prefers to do, and how to do it Management preferences, organization and resources influence strategy. Strategy we decide to take determines what resources we need, and the organization – what skill set do we need? and management preference Strategy is also influenced by Management preferences Importance of Strategy Strategy: what opportunities the business is pursuing • determines needed resources, organizational capabilities, and management preferences • Any variable can either drive or constrain strategy The critical linking variable in the model First task -deal with strategy-environment linkage -Assess forces at work and their implications Management Preferences Organization Strategy Environment Resources Look at the environment, and ask what opportunities or threats are there? When looking at the environment, look at todays conditions, as well as tomorrows – it is not enough to only assess todays because the environment is constantly changing (Look ahead) Diamond E- Principal Logic Principal logic – consistency or alignment • Consistency internally leads to performance • Each variable impacts and is impacted by the rest • Alignment externally ensures strategy right for the given environment • Warning: environment always changing -is strategy in alignment with environment? -Is strategy consistent with internal variables? If you lack resources, or capabilities to execute the strategies, you will not be able to pull it off Consistency is all about capabilities risk Have environment risk when the strategy is not right for the environment Is stragety consistent with internal variables? Do I have what I need to execute the strategy? Do I have what I need, or must I change my strategy? External Analysis • Process of scanning and evaluating the external environment • How managers determine opportunities (positive external trends or changes) and threats (negative external trends or changes) • Firms face multiple environments: • general environment; affects all businesses • Specific environment; affects industry participants Where opportunities and threats come from Interest rates are an example of a general environment factor – all businesses face the same interest rate Environment for your industry – the specific environment How to do an external analysis.. • General environment -PEST model – considers political, environmental, 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 • Look for data, statistics, trends, forecasts, expert opinions, etc. PEST – Political-Legal Environment Elements: Laws, regulations Taxes Trade agreements or conditions Political system Political stability Government can create incentives, constraints, or support/bail out when needed Affects uncertainty, risk, and constraints/costs faced by firm packaging, and labelling laws – Australia didn’t like smoking so they decided that the packages are plain brown. The tobacco industry was unhappy because it is important to have an attractive packaging Corporate, and personal taxes. Particular taxes on particular products. Excise taxes on cigarettes. If income taxes go up, there is less consumer spending (less disposable income) With trade agreements, duty is demolished. If Canada sells remote controls to America, our products entered their market cheaper – an opportunity for Canada and a threat to America In Canada our government is more involved – therefore more rules for businesses – there is more competition from the government Canada and USA are very politically stable – good for investment because very predictable. An unstable political environment is less predictable and has more opportunities and threats An opportunity for one group, a threat for another grou p **more in the text on page 15 Economic Factors • Economic growth – aggregate output, GDP, and standard of living • Trade balance – importing vs. exporting • National debt – government borrowing • Economic stability - inflation • Interest rates – time value of money • Exchange rates Influences costs, potential sales, and financial uncertainty If AG and GDP is increasing, we have a higher standing of living If there is an oil spill, and it costs to clean it up, GDP goes up, but does not add value Export > Import = trade surplus When another countries economy goes down (USA) they will buy less of our product Other countries are competing with us to borrow money – makes it harder for us to borrow because interest rates go up Inflation – the decrease in the value of your buying dollar Purchasing power decreases when income stays the same, but prices go up When interest rates go up, it costs more for companies to borrow money and they can’t expand as much Costs more to buy a house when interest rates are up, makes it more worthwhile to save money when interest rates are up because you are earning more American business are happy when the canadian dollar is high, because we will buy more from them Canadian manufacturers are not happy when the canadian dollar is high because they look more expensive to canadians **more in the text on page 16 Social Factors • customs, values, attitudes, and demographic characteristics • Influences customer preferences • Influences worker attitudes and behaviours • Influences standards of business conduct • Ethics, social responsibility, stakeholder management Affects how we live, work, consume and produce All about society, societies are different from one region to the next in terms of customs, values, attitudes, and demographic characteristics All of these factors influence customer preferences McDonald’s big mac differs in Canada, USA, France, India Worker attitudes and behaviour – often Japanese business men commit suicide if their company is not doing well, not in the USA or Canada Business conduct may not be the same Ex. In old movies, it was glamorous to smoke, now the “bad guys” smoke in the movies – the way smoking is regarded has changed over time **more in the text on page 23 Technological Factors • Internet affects buying, selling, communication • Information technologies affects information acess, inter-firm cooperation, cycle times • Computer technologies have changed our products and how we design and build • Not limited to computers and information Affects what we produce/what it can do, affects how we produce and how we sell Demands constant learning and scanning Manuel may not come with the phone that you buy, you may need to go online to understand how to use it Today car companies can use computers to build a close to perfect prototype – we used to have to plan, test and keep testing until the prototype was good enough for the market (cycle times have gone down) You must constantly be scanning the environment to see what new technologies are coming so your competitor does not outperform you Look at patterns in order predict the future **mor
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