Comm103_Notes.pdf

Douglas He Comm 103 Sept. 10, 2012 Business Management & Communications Chapter 1 – What is Business? 3 Fundamental Characteristics of a Business -> Business Foundation Commercial Endeavours: market business serves, goods/services it offers, and needs business meets Employee Interaction: skills of staff Organizational Efficiency & Structure: culture of business and its command infrastructure Business: firm that identifies needs of a particular market, delivering goods/services to consumers for quantitative/qualitative profit --------------------------------------------------------------------------------------------------------------------- Assets: resources, raw/buildings of an organization + Labour: human resources of a firm + Capital: money needed to support ventures, innovations and operations of a firm + Managerial Acumen: ingenuity and intelligence of top level managers = Business Model: operational structure on which business uses to generate revenue --------------------------------------------------------------------------------------------------------------------- Business Planning Cycle 1) Strategy (objectives of firm) and 3C Assessment (capability, competency, capacity) -> 2) Development -> 3) Execution -> 4) Performance and Profitability -> 5) Growth and Reinvention Competitive Advantage: firm offers service that is more valuable than similar ones offered by rivals Douglas He Comm 103 Sept. 10, 2012 -businesses grow by executing new planning cycles to reposition firm as dynamic marketplace changes, in order to link mission and vision of organization in line with profitability and success Such objectives should be -> Specific, Measurable, Actionable, Controllable -failure to meet objectives of planning cycle can be a result of poor execution or poor positioning --------------------------------------------------------------------------------------------------------------------- Fundamental Objectives of Business 1) Short-Term Profit 2) Long Term Growth and Profitability 3) Social and Environmental Responsibility stakeholders: those who have direct/indirect stake in firm’s success/policies stockholders: those who have at least a share of stock in a company profit: Total Revenue – Total Expenses = Profit profitability: efficiency of assets used over a period of time, benchmarked against competitors --------------------------------------------------------------------------------------------------------------------- value proposition: statement stating who the service/product is for, and the benefits of such ->how the product is different from rival products ->Service Benefits + Product Benefits + Brand Benefits + Cost Benefits + Emotional Benefits -higher quality of the product, better pricing it will display -> quality also depends on brand recognition, loyalty and emotional value to consumers market segment: unique niche in which a business can target customers --------------------------------------------------------------------------------------------------------------------- asset-based costs: costs incurred from start-up or expansion operating costs: costs from day-to-day operations strategy: long-term decisions and plans of a firm tactics: immediate actions which a firm executes to meet concurrent objectives --------------------------------------------------------------------------------------------------------------------- Douglas He Comm 103 Sept. 10, 2012 Business Decision-Making Model 1) visualize business opportunity -> 2) check market size and profitability potential -> 3) determine position in market, approach and sustainability -> 4) assess firm’s resources and capability -> 5) execute strategy and tactics business is not about producing and distributing goods, but about meeting desires/needs of consumers --------------------------------------------------------------------------------------------------------------------- Case For Discussion 1. Manufacturers have been marketing to consumers largely on the basis of pricing differences from competitors. What businesses in this particular market have failed to do is differentiate their particular product or model in a fashion that would take consumer focus away from pricing. In essence, no firm or business in this market has ensured profitability, and will have to incessantly lower prices to remain competitive. 2. Sylvie must be able to present Cruiser Laptops Inc. with a value proposition that has a unique selling point, or competitive advantage over all the other firms in the marketplace. There must be a distinctive form of differentiation her firm’s laptops hold over rivals. This change does not have to be cost benefits, as everyone has been focussing on. Rather, this distinction can be based on service benefits and improved software that no one else has. If this initial proposition is taken with success, other benefits such as emotional attachments and brand recognition will continue to give Cruiser an edge in the market. 3. –cut costs by using cheaper suppliers, and then reducing prices to remain competitive -engage in a highly focussed marketing campaign that will increase consumers’ perceived benefits of Cruiser brand -employ CSR and communicate such to consumers (proceeds of profits will go towards charity) Chapter 4 –The Environment and Sustainable Business Practices environmental stewardship: integration environmental practices into business operations degradation: continued deterioration of environment through depletion of resources and destruction of ecosystems the goal is to design businesses in a way that incorporates sustainability of this earth into practices that will mean profitability and a competitive advantage Douglas He Comm 103 Sept. 10, 2012 Five Great Sustainability Challenges 1)Resource Depletion 2)Energy Crunch 3)Climate Change 4)Pollution & Health 5)Capital Squeeze Kyoto Protocol: 1997-2005 binding agreement to participating nations into reducing emissions --------------------------------------------------------------------------------------------------------------------- Resource Availability peak model theory: resources are finite, and eventually maximum production point will decline 7 Factors of Demand/Supply Current Supply Development Constraints: rate at which existing known resources can be developed Political impact factors: legal barriers to carry out business productions (taxes and tariffs) Rate of new Discoveries: discovery of new fossil fuel reserves Declines in current production: reduction in current supply of resources Immediate access to additional capacity: ability of suppliers to tap into excess capacity of resources Geopolitical instability: instability of regions that supply global energy needs Development speed of alternate energy sources: rate at which alternate energies can be made applicable to mass consumers ------------------------------------------------------------------------------------------------------------------------------------------ Resource Depletion resource management: to actively managed existing supplies and minimize waste sovereign wealth funds: state-owned investments -resource depletion in developed nations has led to exploitative activities in third world nations rich in natural resources Mass capital squeeze leads to ->lack of access to capital for developed nations ->reduction of savings in developing states -> cost of capital will increase, and thus increase debts worldwide ->financial protectionism could creep up, which would slow down the global markets Douglas He Comm 103 Sept. 10, 2012 Trade Management 1) participants in any economic or trade bloc must all pay for costs of environment degradations (no-opt outs): binding for ALL 2) global markets must accept pricing that includes costs of environmental sustainability 3) participants in any economic bloc must adhere to regulations and subscribe to green initiative, including shunning those who would attempt to circumnavigate such restrictions Eco-efficiency management: tactical shift in businesses to maximize efficiency of resources and eliminate degradation of planet --------------------------------------------------------------------------------------------------------------------- Benefits of Environmental Sustainability -improved corporate image; consumer loyalty -less negative legal interaction -stronger brand image leads to pricing power -enhanced greener processes leads to lower overall cost in the long run -stronger employee base with a conscience -responsible businesses are granted more open doors and can lead to new options Chapter 5 – Ethics and Corporate Social Responsibility ethics: moral beliefs of what is right and wrong -companies may get caught up in competitive rivalries and changing market conditions, but they should not get caught up in unethical behaviours that would demoralize employees or destroy brand loyalty whistleblowing: process through which employee reports another of unethical behaviour -board of directors and upper management must take control and lead the initiative for the firm to run things that are clearly conscientious forensic accounting: integration of accounting, auditing and other investigative skills ->used to uncover any hidden unethical practices within a firm, and extent of damage it has Douglas He Comm 103 Sept. 10, 2012 corporate social responsibility: understanding that a business is a partnership between the firm and the society it affects, and that the objectives of both should be met -the importance of CSR lies in the fact that in a realm of growing competitiveness and drive to be distinctive, the ability for a business to call themselves socially responsible may be the difference factor for consumers -> consumers are paying attention to CSR, and are starting to realize more than pricing when it comes to decision purchases Chapter 13 – Introduction to Capital and Financial Markets 5 key factors influencing start-up of business… 1) Ease of set-up and operations; legal barriers 2) degree of control owners get 3) amount of risk owners willing to take on 4) financial capacity for start-up costs 5) anticipated skills required for success -these factors will need to be reviewed at many points in organization’s life cycle -as managers/owners, one must be continually aware of firm’s financial capacity, liability exposure, risks, and skills necessary for operations capital structure: an organization’s use of its assets, including debt, internal cash reserves, and external equity investments, to carry out operations operating profit: total revenue minus total operating expenses retained earnings: amount of net earnings accumulated over history of organization credit facilities: debt organization taken on to support business operations ->short-term credit facility is debt taken on for one year or less accounts payable: money owed by firm to suppliers and short-term loaners accounts receivable: money owed by consumers to firm for products / services line of credit: arrangement with loaner for firm to take out borrowed money anytime (with a ceiling) Douglas He Comm 103 Sept. 10, 2012 collateral: capital / monetary assets used to secure a loan ->long-term credit facility is debt taken on for more than a year cost of borrowing: total sum of money owed to credit facility, including interest and loan start- up costs bond: organizations borrow money and pays holder of bond interest over regular intervals, during the time that the money is borrowed rating agency: firms that offer objective and independent assessment of a business’ solvency, liquidity and long-term health junk bond: bond with high probability of default (will require high interest rate for firm to acquire) mortgage: loan backed by real estate collateral, sets schedule of periodic payments, totalling the full debt plus interest principal: amount of money actually being borrowed, separate from interest amortization period: specified length of time over which loan will be paid off long-term note: similar structure to mortgage, except they are usually shorter periods of time prime lending rate: base lending rate issued by banks, reserved for most trusted clients lease obligation: loan issued with periodic payments, for use of equipment and property Impact of Credit Facilities -when making decisions to use credit facilities as source of funds, must ensure repayment obligations do not jeopardize liquidity and solvency of business in its operations debt leverage: use of debt to finance organization’s asset base --------------------------------------------------------------------------------------------------------------------- Equity Options private equity: funds obtained by firm from private hands ->can be direct investment into company, or purchase of company shares public equity: funds acquired through publicly traded shares (Initial Public Offerings) or secondary offering of shares (Additional Public Offering) can pursue fundraising options Douglas He Comm 103 Sept. 10, 2012 philanthropy: donation of funds to a person / organization to enhance lives of others Chapter 14 – Understanding Financial Statements -analyzing and interpreting financial statements allows mgmt team to keep fingers on the pulse of organization gross profit margin: revenue left after direct costs (wages + materials) are paid profitability margin: portion of revenue that is left after all operating expenses are paid managers rely on analyzing three main financial statements… 1) balance sheet 2) income statement 3) cash flow statement --------------------------------------------------------------------------------------------------------------------- Two Fundamental Types of Business Transactions operational transactions: flow of money to do with day-to-day operations (revenue and recurring expenses) capital asset transactions: decisions managers make in terms of investment and handling of capital assets (land and equipment) -> although these assets are not directly related to current year profits, they do impact cash flow in the long term --------------------------------------------------------------------------------------------------------------------- Liquidity, Solvency, Efficiency, and Financial Capacity liquidity: # assets business can turn easily into cash capacity: ability of firm to generate revenue and grow its sources of revenue solvency: ability of firm to pay off long-term fixed expenses and fund future growth efficiency: ability of business to effectively manage operations and allocate resources -important role of managers when conducting financial analysis, is to make conclusions about firm’s current and future liquidity and solvency --------------------------------------------------------------------------------------------------------------------- Income Statement Douglas He Comm 103 Sept. 10, 2012 income statement: shows whether or not business is earning a profit from sales, minus expenses -> summarizes operational transactions -> measures firm’s efficiency ->shows firm’s profit over a period of time after taxes Sales Revenue – COGS = Gross Profit Margin Gross Profit Margin – General Operating Expenses – Interest – Tax = Net Profit --------------------------------------------------------------------------------------------------------------------- Balance Sheet balance sheet: shows resources business has at a certain time, and the costs it has incurred from getting these resources ->measures firm’s capacity and liquidity Assets = Liabilities + Owners’ Equity Owner’s Equity = Retained Earnings + Owners’ Capital Invested --------------------------------------------------------------------------------------------------------------------- Statement of Cash Flows cash flow statement: shows the total movement of cash (from all sources) into and out of the business ->summarizes sources and uses of business’ cash flow ->provides insight into current and projected liquidity of firm Income Statement + Cash from Operational Activities + Cash from Investing Activities + Cash from Financing Activities = CHANGES TO CASH POSITION Cash from Financing Activities: cash flowing into firm from non-operating activities Cash from Investing Activities: uses of cash flowing out from non-operating activities Cash from Operational Activities: adjustments to net income to reflect actual cash from operating activities --------------------------------------------------------------------------------------------------------------------- Analyzing and Interpreting Financial Information Douglas He Comm 103 Sept. 10, 2012 1. ratio analysis: assessing relationships among financial statements 2. leverage analysis: assessing impact of debt accrued by firm in order to finance its assets 3. trend/comparative analysis: look for trends by assessing financial statements over multiple periods of time 4. absolute analysis: specific dollar amount of financial resources available -only by using all 4 methods are managers able to get a real sense of financial position and health of firm --------------------------------------------------------------------------------------------------------------------- Ratio Analysis -ratios although useful, are by themselves not always indicative of firm’s fiscal health profitability ratios: assessing amount of income firm has earned in comparison to operating activity and assets used to generate such income Return on Sales: % sales that actually generated profit for business Return on Sales = Net Income / Net Sales Return on Assets: productivity of assets in producing income for firm Return on Assets: Net Income / Total Assets Return on Equity: net income earned on each dollar invested by shareholders Return on Equity: Net Income / Total Equity Earnings Per Share: return on investment for each share purchased by investor Earnings Per Share: Net Income / # Shares Outstanding -> note that this does not mean shareholders actually get this money, as firm may not pay out dividends solvency and liquidity ratios: assessing financial obligations against firm’s financial resources do determine if firm has enough capital to meet its upcoming needs Douglas He Comm 103 Sept. 10, 2012 Current Ratio: relationship between firm’s current assets and current liabilities Current Ratio: Current Assets / Current Liabilities Quick Ratio: quick assets (ability to be turned immediately into cash) against current liabilities Quick Ratio: Cash + Marketable Securities + Accounts Receivable / Current Liabilities ->also known as acid-test ratio, this is used when firm is extremely concerned about its current liquidity position Solvency Ratio: ability of firm to meet long-term financial obligations Solvency Ratio: Net Income + Depreciation / Total Liabilities ->general rule is that solvency ratio should be equal or greater than 0.20 Debt ratios: assess relationship of debt value against firm’s total asset base, and ability of firm to meet its debt obligations Debt to Asset Ratio: relationship between value of debt and value of firm’s assets Debt to Asset Ratio: Total Liabilities / Total Assets ->higher the ratio, the greater the potential solvency issues Debt to Equity Ratio: relationship between money raised via borrowing and money raised that investors have provided Debt to Equity Ratio: Total Liabilities / Total Equity Times Interest Earned Ratio: assesses ability of firm to meet its interest expenses Times Interest Earned Ratio: Earnings Before Interest and Tax / Interest Expense Douglas He Comm 103 Sept. 10, 2012 ->shows lenders that at the very least, firm will be able to pay back interest on loans activity ratios: assesses efficiency and effectiveness of key components of firm’s operations; shows mgmt how effectively firm is using asset base for operations Days Receivable: ability to convert money owed to firm into cash Average Day’s Sales: Net Annual Sales / 365 Days Days Receivable: Accounts Receivable / Average Day’s Sales ->if this ratio is high, then firm could face short-term liquidity issues Inventory Turnover: ability to turn inventory into cash Inventory Turnover: Cost of Goods Sold / Average Inventory Day’s Inventory: 365 / Inventory Turnover ->note that longer inventory remains unsold, greater the concern that it will not be sold for full price, and greater strain it places on firm’s cash flow --------------------------------------------------------------------------------------------------------------------- Leverage Analysis leverage: amount of debt firm uses to acquire / maintain its asset base Benefits of Leverage -in profitable situations, where firm’s earnings are enough to cover interest expenses, better to use external funding rather than use up profits of past years Risks of Leverage -in unprofitable situations, where firm’s earnings are not enough to cover interest expenses, better to have used internal sources rather than to have sought loans Managers need to recognize risks of leverage, and try to use debt in a way that enhances growth rather than exposing it to liquidity and solvency issues. Trend / Comparative Analysis Douglas He Comm 103 Sept. 10, 2012 -by comparing financial statements and ratios against projected goals or historical performance, we can assess whether liquidity and solvency positions are being improved, and if organization is improving overall efficiency --------------------------------------------------------------------------------------------------------------------- Absolute Analysis absolute analysis: specific dollar amount of financial resources available ->ratios are important to understand efficiency, but absolute dollar value accurately gauges the potential dollars a firm stands to generate --------------------------------------------------------------------------------------------------------------------- Forecasting and Budgeting forecasting and budgeting: mgmt’s ability to anticipate organization’s financial position ->requires benchmarking in firm’s market/niche, anticipate how its products/services will perform ->set specific operational targets for various departments, to keep on track in terms of operational efficiency and effectiveness ->provides process in which scarce resources can be allocated to projects and initiatives anticipated to yield best results ->forecasts/budgets become targets against which actual results can be measured, enabling managers to make proactive decisions to rectify business activities mid-period -in essence, accuracy of sales forecasts underlies decisions regarding production, inventory, mgmt, and infrastructure spending designated restricted assets: assets set for a specific purpose, and not available for managers to use elsewhere Chapter 2 – The Canadian Economic Environment ->in recent years, Canada has been known more and more as a “petro economy” (growing dependency on the energy sector to drive the value of the currency ->Canada should realize a balance of trade surplus (imports) and exports Douglas He Comm 103 Sept. 10, 2012 G7/8: quasi-organization with full membership from world’s most developed economies in the world, with temporary representatives from major developing economies -> goal is to discuss major economic, political and societal issues challenging global marketplace -over the past 200 years, Canada has transitioned from an agricultural economy to a diversified system with systems and products alike being sought by consumers of the world -driving products are oil and petroleum gases, agricultural products, minerals, forestry products -driving services are telecommunications, aerospace, energy support --------------------------------------------------------------------------------------------------------------------- Contributing Factors to Economic Development -key to stability and growth of nation’s economy lies in its ability to provide a stable environment, and to ensure required mgmt systems are in place to support future economic growth Political Stability Manageable Established National Levels of Factors of Monetary National Debt Production Policy and Banking System Sufficient Low Inflation Absence of Effective Legal Comparative Levels of Corruption System Advantage Investment comparative advantage: ability of nation to produce/supply goods/services at a lower cost than others, OR to have unique resources and services that aren’t available anywhere else Foreign Direct Investment (FDI): company/individual from foreign nation invests in a business from another country ->increased FDI occurs when investors view nation as a safe and lucrative place to do business --------------------------------------------------------------------------------------------------------------------- The Underlying Economic Model Three Fundamental Principles 1. Law of Supply and Demand 2. Allowance of private ownership, entrepreneurship and creation of wealth Douglas He Comm 103 Sept. 10, 2012 3. Extent of gov’t involvement in influencing economic activity and direction --------------------------------------------------------------------------------------------------------------------- Law of Supply and Demand -ability of the market (free of external influence) to determine the price for which a product/service will be sold -demand reflects the number of purchasers who are willing to pay for said service/product, at different price points -demand can be elastic or inelastic (demand reaction to changes in price) -supply reflects quantity of product/service producers are willing to present to the market at different price points ->suppliers consider cost of production versus potential revenue from selling product at certain times -together, demand and supply form the basis for the relationship between quantity demanded and quantity supplied ->at an equilibrium point, quantity supplied equals quantity demanded, and thus there is no shortage or surplus of goods, with the price point being at equilibrium -price may also be influenced by external mechanisms such as duties, tariffs, subsidies or other regulatory practices --------------------------------------------------------------------------------------------------------------------- Allowance for Private Ownership, Entrepreneurship, and Wealth Creation -refers to level of freedom/openness of market to encourage and promote private enterprise and personal ownership -developed economies tend to fully support this notion -developing economies are gradually allowing more access to these fundamentals -command economies restrict entirely these capitalistic principles --------------------------------------------------------------------------------------------------------------------- Gov’t Involvement in Influencing Economic Activity and Direction -various roles gov’t can play with day-to-day economic activities Douglas He Comm 103 Sept. 10, 2012 -gov’t can act as consumer purchasing goods/services -gov’t can at as regulator by restricting access or determining level of competition -gov’t can act as manager by running crown corporations in competition to private sector -gov’t can act as a taxation agent -gov’t can act as economic stimulant by providing grants/subsidies and building infrastructure open system: economic system that adheres to principles of capitalism and private ownership controlled system: economic system where fundamentals of supply and demand are largely restricted or absent; gov’t fully controls economic activity mixed system: economic system that is a mixture of both open and controlled systems; includes core principles of economic freedom, with certain degree of centralized planning and gov’t regulation (most developed nations are this type) --------------------------------------------------------------------------------------------------------------------- The Economy in Simple Terms 1. Expenditures: purchases to meet day-to-day economic activity and improving overall quality of life 2. Savings: money set aside for wealth creation in the future (RRSP’s) 3. Capital Asset Investments: investments made today to expand economic capacity in future (real estate + buildings / operating equipment) 4. Credit: borrowing of money to support expenditures/investments Economic Activity = Expenditures + Savings + Investment + Credit --------------------------------------------------------------------------------------------------------------------- Economic Growth Cycle Gross Domestic Product (GDP): total market value of goods/services national produces domestically over a period of time (usually one year) ->goods/services purchased domestically ->business investments in economy ->goods produced for export Douglas He Comm 103 Sept. 10, 2012 ->gov’t spending -economists track movement of GDP over period of time to determine growth/contraction of nation’s economy recession: period of time in which economy is contracting (when economy has two or more quarters of negative GDP movement) 1. Growth in economy via consumer spending leads to increased corporate revenue and gov’t taxation revenue 2. Due to increase in corporate profits and gov’t taxation revenue, both parties now have increased capacity to invest in new products / services and new infrastructure 3. Increased business activity requires more employees and increases employment opportunities 4. With increase in need for workers, employers are forced to provide higher wages, and this thus entices workers to spend more. This then stimulates more growth in the national economy. This process reverses during periods of economic contraction. --------------------------------------------------------------------------------------------------------------------- Managing the Movement in the Economy -growth in economic activity is desired, but needs to be controlled in a way that generates investment but maintains level in prices of goods to prevent inflation inflation: rise in level of prices of goods/services within economy over period of time (devalues value of domestic currency) -geographical distribution of resources and manufacturing plants may also lead to regional disparity in growth rates within one country --------------------------------------------------------------------------------------------------------------------- Trends Impacting the Canadian Market Inflation -robs economy of true growth and creates negative psychological impact on confidence levels of consumers ->commodities that are growing scarce such as fossil fuels will see prices continually spiralling upwards, unless alternative sources can be found Douglas He Comm 103 Sept. 10, 2012 Geographic Clustering -occurs when regional economies develop distinctively until interdependency is minimized; inability of gov’t to effectively introduce national-based economic mgmt. actions Currency Exchange Rate Impact -appreciation of Canadian currency value against other currencies has advantages and disadvantages + -> reducing price of goods imported into country and profits in export of commodities - -> negatively impacted tourism and manufacturing export sectors, as Canadian products being exported have risen in price Branch Market Impact purchasing power parity (PPP): measurement taking into account relative cost of living and inflation rates of each country ->high demand for Canadian resources and natural commodities has resulted in foreign acquisitions of Canadian companies; could run the risk of having Canada simply become a branch market economy ->Canadian gov’t tightening regulations of foreign acquisitions and harshly assessing if such moves will be in the interest of Canada hostile takeover: when attempt to take over a company whose mgmt + board of directors are unwilling to agree to takeover/merger Sustainability and Green Initiatives -businesses will seek to achieve market positioning advantages and cost advantages to improve company perception and protect the environment Aging Workforce, Immigration and Multi-Culturalism -developed economies face risk of experienced workers in key industries retiring and a significant natural brain-drain -need for skilled workers in intellectual capital resolved by immigration and recruiting well- educated workers Long-Term Competitiveness Douglas He Comm 103 Sept. 10, 2012 -with the rise of developing nations with huge levels of manpower and consuming / production capacity, developed economies will be challenged to maintain competitive advantages in the global marketplace Small Business Emphasis -small businesses and entrepreneurships are integral to nation’s growth in terms domestic market growth and global niche markets -with more and more business starting up on the internet, small sized firms will continue to thrive Globalization -businesses need to become more efficient in operational processes and productivity, and adapting to demands of the global markets -as world becomes more interconnected, there is increasing competition and continued innovation -> leading to shorter product life cycles --------------------------------------------------------------------------------------------------------------------- Managing in Challenging Times -for managers, it is critical that they understand the domestic economy as well as global economies that influence domestic prosperity Primary Economic Indicators -unemployment rate -inflation rate -Consumer Price Index -new housing projects -manufacturing inventory -Consumer Confidence Index -price of crude oil -stock market indexes -currency exchange rate -retail sales figures Douglas He Comm 103 Sept. 10, 2012 PESTEL Analysis: macro-level assessment of political, economic, social, technological, environmental and legal trends that impact markets protectionism: economic policies put in place to improve competitiveness of local/domestic businesses; restricting access to foreign firms through use of tariffs / quotas etc. --------------------------------------------------------------------------------------------------------------------- Understanding Competitive Models -understanding competitive environment business is in is critical to creating a strategy as to how to allocate resources in support product positioning and marketing efforts Purely Competitive Markets Monopolistic Markets -products with little differentiation -different suppliers -lack of dominant market leader -large number of small firms -few barriers to entry -nature of industry, along with marketing -price is key decision effort, has enabled true differentiation ->e.g. commodity-based markets -distinction, brand value, quality and price all factors ->e.g. cell-phone manufacturer Monopoly-Based Markets Oligopoly-Based Markets -single product / single supplier -small number of suppliers that control large -gov’t regulated, due to belief that single entityportion of market share providing product/service is more efficient and -firms compete on the bases of distinguishing provides better pricing products/services from competitors ->e.g. supply of electricity/natural gas -major players find success as a result of huge capital investment and great economies of scale ->Boeing in airline manufacturing business -in addition to assessing current status of competitive market, managers must recognize that market composition will not remain static --------------------------------------------------------------------------------------------------------------------- Sensing Market Change Porter’s Five Forces Analysis Threat of New Entrants Bargaining Power of Rivalry Among Existing Bargaining Power of Buyers Suppliers Competitors Threat of Substitute Products/Services Douglas He Comm 103 Sept. 10, 2012 -managers must constantly step back and assess the industry and predict potential disruptive changes that will render products obsolete or negatively affect customer base Chapter 3 – The Global Marketplace -although US economic capacity still carrying the load, developing nations (BRIC) that are maturing and benefitting from FDI are starting to enter the picture of the big economic players -with operations becoming increasingly globally distributed, managers are challenged to maintain coordination and control over their strategies and goals --------------------------------------------------------------------------------------------------------------------- Why Go Global? New Market Opportunities -as domestic markets get saturated and local opportunities decrease, new market potential is on the international stage in foreign states -searching for new markets is an option for both developed economies and developing ones Cost Reduction Opportunity -firms look for nations where labour costs are low relative to occupation skills -as competition intensifies and differentiation becomes harder, price becomes more important offshoring: transferring a component of business to another country to reduce costs outsourcing: contracting out component of business to reduce costs Resource Base Control -key to resource acquisition strategy lies in controlling supply sources and generating lower costs Closeness to Markets -establishing businesses within emerging economic regions enable firms to react faster to growing trends and opportunities Economies of Scale -reductions in cost base of a business due to greater size, greater process standardization and enhance efficiencies -globally focussed businesses are more flexible with producing parts and thus can trade products around the world Douglas He Comm 103 Sept. 10, 2012 --------------------------------------------------------------------------------------------------------------------- Global Market Stability: The Role of Government -global recession in 2008 came from free flow of debt services and crediting without any unified regulatory system for global markets Ongoing Commitment to International Trade System -need for countries to adhere to trade policies and int’l agreements set by WTO -WTO provides regulatory and policy guidance on issues relating to flow of goods, IPR’s and dispute resolutions Market Openness -willingness of countries to open their borders to competitive goods and services to maximize benefits for citizens ->work towards abolition of tariffs and taxes, minimization of trade disputes, resistance to nationalization of economic sectors Absence of Protectionism -resist urges to protect domestic industries by restricting openness of markets to foreign competitors Adherence to the Fundamentals of Fair Trade -commitment of gov’ts to support IPR’s and patents of companies, accepted labour practices, and environmental standards set by global marketplace black market: illegal market that arises where goods are scarce, taxes are high, or prices of legitimate product too high for general population Balanced Economic Development -gov’ts must ensure that total focus of economy is not export, so that nation is not totally reliant on external sources -domestic growth leads to stronger economic base and creates stability for the nation Responsible Sovereign Debt Management sovereign debt: debt issued or borrowed by a national government -nations will carry deficits to manage economic volatility and meet the needs of citizens Douglas He Comm 103 Sept. 10, 2012 -emerging economies require significant economic support (World Bank, IMF) to get economy off the ground -countries must try to develop stable economic platforms that result in long-term wealth balance of trade: relationship between imports and exports over a defined period of time -> trade surplus (national export exceeds imports) ->trade deficit (national imports exceed exports) current account: country’s net trade in goods and services, plus net earnings from interest and investments --------------------------------------------------------------------------------------------------------------------- Global Market Trends 1. Global marketplace will continue to grow, with developing nations growing at twice the rate of developed economies; domestic growth along with increased govt’ investment in infrastructure and social benefits will be key 2. Economic specialization will continue to increase as free trade improves from nation to nation 3. Global recession in 2008 will continue to impact the world in the short term; more fiscal regulation is needed, and the slow recovery of the EU will create slower pace of economic growth 4. Energy prices will continue to have strong influence on cost bases of businesses, and alternative energies will be highly sought after. 5. Trade relations between US and China will be critical, as growing concerns of low-valued yuan against strong American dollar persist 6. Demographics will continue to influence economic decisions; aging developed economies will need to loosen immigration policies to meet domestic needs, while younger developing economies need to meet employment needs of their youths 7. Agricultural subsidy programs will remain focal point; developed nations use subsidies to keep prices artificially low, but developing economies with agriculture as a main industry lobby for these subsidies to be abolished so they can penetrate these markets 8. Inflation could become great problem in the coming years, debt accrued from response to 2008 recession could pose great pressure on interest rates; gov’ts and banks must manage credit policy better Douglas He Comm 103 Sept. 10, 2012 9. Nations need to work together on growing environmental concerns and learn to promote sustainable business practices 10. Interdependence between countries will continue to grow, and as trade growth exceeds infrastructure capabilities, bottlenecks will occur free trade agreements: facilitate international trade between companies of transnational borders, not impacted by any tariffs or restrictions --------------------------------------------------------------------------------------------------------------------- The Concept of International Trade -what has allowed trade to flourish is willingness for marketplace to engage in specialization so everything so that efficiency is improved --------------------------------------------------------------------------------------------------------------------- Evolution of a Global Presence -shifting to a global presence for a business is a strategic decision that requires thought as to where and how to compete Currency Exchange Rates Value of nation’s currency influenced by six predominant factors… 1. GDP Movement: economic contraction / expansion of country 2. Governmental Budget Surplus/Deficit: ability of nation to stick to realistic budgets and control sovereign debt levels 3. Trade Balance: ability of nation to operate within acceptable balance range, avoiding huge deficits from borrowing 4. Consumer Price Movements (PPP): ability of nation to maintain rate of inflation, ensuring real growth and increasing purchasing power of the currency 5. Capital Mobility and Supply: supply of capital and ability to use credit by a nation/business 6. Movement in Domestic Income Level: Growth / contraction of income of domestic citizens, resulting in changes in standards of living -strong economic growth, balanced domestically and internationally, improves living standards and developed without increasing levels of gov’t debt and controlled inflation ; results in upward value of nation’s currency relative to other nations’ currencies Douglas He Comm 103 Sept. 10, 2012 Chapter 6 – Developing a Business Strategy The Concept of Business Strategy Well-positioned and directed Strategy + Efficient and Effective Tactics Execution = Business Growth and Profitability -the above equation is key to long term success for affirm --------------------------------------------------------------------------------------------------------------------- Core Elements for Assessing Business Strategy 1. Purpose -> mission of the firm and vision of mgmt. for the business mission: organization’s reason for existence vision: what an organization wants to become / direction it is headed -> review of these two statements critical to deciding where and how to compete in the markets 2. Markets -> specific markets / market segments business wants to target -> mgmt. must assess current profitability in existing markets and growth potential in other possible segments / demographics harvesting: strategy that involves reduced commitment to certain market due to perceived weak future growth potential 3. Products and Services -> review of current products/services and potential new products that can be added to firm’s product portfolio -> inevitable that products can become obsolete due to technological innovations, changing trends and tastes, or more competitive substitutes -> critical part of strategy development is to determine which goods are worth spending extra R&D into, and which ones should be added to portfolio 4. Resources Douglas He Comm 103 Sept. 10, 2012 -> important to identify parts of firm that are most profitable both short term and long, and divest the most resources into 5. Business System Configuration -> researching and updating firm’s distribution outlets, warehousing, production facilities, and marketing campaigns 6. Responsibility and Accountability -> identifying key objectives to be achieved and who will be responsible for each objective (should also include clearly how success will be measured; SMAC) SMAC: Specific, Measurable, Actionable, Controllable -a strategic plan provides a specific route to undertake, allots benchmarks to measure success periodically, and identifies where and how business will interact with consumers to meet its mission and vision --------------------------------------------------------------------------------------------------------------------- The Strategic Planning Process Company Analysis Customer Analysis Revisit Our Identify Define Our Develop Execute Purpose Opportunities Objectives Our Plan Our Plan & Threats Macroeconomic Analysis Competitor Analysis Revisit Our Purpose: Assessing fit of current mission & vision statements of firm Undertake Internal/External Analysis to Understand Our Environment: changes / shifts in market that threaten us / provide extra opportunities Assess Our View of the World: what are our choices going forward? Choose a Direction: given our competencies/capabilities/competitive advantages what strategic decisions should we make? What threats do we have to face? Implement our Strategy: How will we achieve our objectives and successfully execute the plan? --------------------------------------------------------------------------------------------------------------------- Douglas He Comm 103 Sept. 10, 2012 Internal / External Analysis -all about assessing business risk and change in four key areas; macroeconomic, industry, competitor, company -external analysis focusses on factors influencing markets today, and what will influence them in the future Business Model Focus of Analysis PESTEL -understanding of macroeconomic environment -political, economic, social, technological, environmental, legal Porter’s Five Forces -understanding dynamics of competitive industry -concurrent rivalry within industry -threat of new substitutes -threat of new entrants into industry -power of suppliers -power of buyers Types of Competition -understanding nature of industry’s competitive landscape -perfect competition -monopolistic competition -oligopoly -monopoly SWOT Analysis -assess company capabilities and the environment it functions in -strengths, weaknesses, opportunities, threats 3C Analysis -assessment of firm’s competencies, capabilities, and capacity in resources --------------------------------------------------------------------------------------------------------------------- Competitive Advantage Identification Innovation Customer Responsiveness Competitive Advantage Opportunity Quality Efficiency Strategy Development corporate-level strategy: what firm intends to accomplish and where it plans to compete Douglas He Comm 103 Sept. 10, 2012 business-level strategy: specific objectives firm wants to achieve for each of its initiatives and units; how the corporate-level strategy will be achieved operating plan: detailed and immediate-term set of objectives and tactics to achieve one business initiative Fundamentals to Operating Plan Formulation Market Opportunity Identification -> Value Proposition & Positioning Analysis -> Revenue Driver Identification and Sales Forecasts -> Upfront and Ongoing Cost Commitment Requirements -> Staffing, Infrastructure & Process Realignment Requirements -prior to execution of strategic plan, managers should review the plan details including… 1. Operational activities properly aligned to achieve objectives 2. Budgets established and projected earnings are realistic 3. Resources needed to execute plan are available and can be acquired with ease 4. Series of performance indicators along the way will enable mgmt. team to effectively monitor progress (or lack thereof) Strategy Execution directional lock-in: level of financial & operational commitment as a result of implementing firm’s strategies -> equates directly to riskiness of plan with firm’s well-being -during execution phase, firms commit their capital resources for building plants, new equipment, R&D, and marketing campaigns, as well as additional hiring of staff -> amount of investment in such operations depends on level of directional lock-in organization commits to --------------------------------------------------------------------------------------------------------------------- Strategy Challenges in the SME (Small and Medium-Size Enterprises Sector) -SME’s do not possess great amounts of managerial resources, and strategy is often geared towards short-term initiatives -effective strategic planning will allow SME’s to maximize return on advertising and production expenditures --------------------------------------------------------------------------------------------------------------------- Douglas He Comm 103 Sept. 10, 2012 Strategic Planning in the NFP (Not-For-Profit) Sector (Social Economy) -difference in planning for NFP and FP businesses is the overall mission of the firm, and the demographic the mgmt team needs to please or respond to ->NFP strategy involve stronger inclusion of social goals and mgmt. must please collective board of philanthropic donors and the gov’t Private Sector Social Economy Overarching Objective Profitability + Maximizing Needs Delivery via Social Gains Interest + Goals Influences Mgmt + Shareholders Democratic Foundation + Organized Collective Financing Debt/Equity Financing + Members of firm + gov’t + Internal Reserves community Predominant Revenue Sales of Goods + Services gov’t + donor sponsorship + Model sales of goods and services 1. Mission Balance: maintaining balance between creating effective economic base while ensuring CSR and social goals are met 2. Vitality: enhance vitality of firm through growth of its membership + community support base vitality: ability of NFP to grow and sustain membership and donor base 3. Collective Entrepreneurship: ensuring involvement of community is reflected in carrying out strategy 4. Rootedness: enhance rootedness of firm by strengthening NFP networks and influential members that are supportive of the work of NFP rootedness: extent to which NFP is interwoven into community and base of support it has from various sources 5. Operational Effectiveness: operate in a manner that demonstrates products offered by NFP ensure accessibility targeted to social audience, and support those who have no means to pay Chapter 7 – Developing Your Business Structure and Culture Business System Design 1) Organizational Structure, Culture + Mgmt. Approach Douglas He Comm 103 Sept. 10, 2012 -formal hierarchy / structure of firm and how communication and sharing of ideas is carried forward -social environment at workplace, and how tasks get delegated 2) Control Systems to Manage Strategic Intent -> evaluations to gauge success of organization in meeting its strategic objectives and operational goals -> in place to guide managers and employees to support overall corporate vision and mission 3) Mechanisms to Manage Skills / Talents -> decision-making hierarchy, span of control and allocation of executive power 4) Market Alignment with Operational Processes -> processes and initiatives to support and direct product development, creation of value propositions, and the supply chain -> includes distribution of marketing sales and service value chain: processes required to support / direct the product / service transformation, creation of value propositions for said products, as well as distribution, marketing, sales and service -firm’s business system should be developed in a way that ensures day-to-day functions, and also ensures processes are aligned with strategic intent in the mid-to-long term --------------------------------------------------------------------------------------------------------------------- Developing the Organizational Framework -when developing organizational framework, managers need to consider three questions… 1) Best structure that will connect and construct relationships with current and potential consumer base and ensure products/services in the marketplace are on par with tastes? structure: formal framework around which tasks are organized and responsibilities allocated 2) What culture or environment is required to meet projected market position, and facilitate development of high-performance work units within the firm? 3) What mgmt. approach will best support interactions within organization to achieve goals and objectives as outlined in strategic plan? Douglas He Comm 103 Sept. 10, 2012 Structure -development of structure not static, but requires constant monitoring to ensure it meets needs of organization, and that they remain relevant to desired markets -structure is about driving efficiency; delivering services or products in a competitive fashion, and meet stakeholder needs Types of Structure Simple Structure- during infancy stage, organizational structure flat and simple Functional Structure- as organization grows, may be need to departmentalize into specific roles Customer Structure- as company grows larger, may even require splitting up into specific cells / operational units responsible for a respective target consumer group; within each cell are also departments Divisional Structure- as company grows successful, may need to restructure along products lines and divisions Geographic Structure-as organization evolves, may grow into national / international player, wherein structure is determined based on geographical location -should be noted that departmentalized approaches to structure fit best when there are different tasks to be specialized in a firm’s industry -in an industry where most tasks are completed through a series of projects, people from different departments need to work in a cross-functional environment, thereby requiring a matrix structure Best organizational structure for a firm will depend on these factors: -size, geographic dispersion, range of business undertakings, task specializations, nature of industry, and perceived best way to connect with consumers Building Blocks of Structure customer intimacy: interactions and degree of connectivity firms seek to have with consumers in order to provide optimal service / support work efficiencies: alignment of tasks required to support design, development, marketing, distribution and sale of the firm’s product / service most efficiently and effectively -could include continuous improvement packages, quality assurance protocols etc. departmentalization: dividing organization’s work units into well-defined functional areas Douglas He Comm 103 Sept. 10, 2012 -division of employees with different skill sets to maximize efficiency and effectiveness -could also result in narrow-mindedness and lack of big picture and stakeholder needs Culture and Environment culture: how individuals within firm behave and how the firm as a whole reacts to internal / external changes -how all layers of organization interact and communicate with one another -underlying values / attitudes mgmt. wants to employees to work with High Power Distance Low Power Distance Individualist Collectivist Masculinity Femininity Strong Uncertainty Avoidance Weak Uncertainty Avoidance Long-Term Orientation Short-Term Orientation Hofstede Cultural Dimensions Model Employee Interaction Risk Allowance -degree of interaction between -degree of entrepreneurship / employees and mgmt. teams creativity embedded into firm -defines participatory nature -measures extent to which of work environment, and firm encourages taking risks sense of teamwork and and being flexible in making developing each other’s skills decisions Cultural Framework -all about attaining the mission and vision of the organization from these 4 points Control Protocols Competitive Emphasis -adherence to rules & policies -extent to which firm within organization encourages competitiveness -degree of rigidity and and rewards employees based emphasis on work conduct on goal achievement -reward systems and quality control systems are examples of control protocols -organizations that benefit from positive work culture encourage flow of information horizontally as well as vertically, resist narrow-mindedness by creating teams with cross- functional mix of employees Douglas He Comm 103 Sept. 10, 2012 Management Approach managerial hierarchy: number of levels (vertical) mgmt. deems necessary to manage organization -> also called chain of command decision-making control: level of authority transferred down from each managerial position -centralized authority retains managerial control at the top of the firm -> supporters call this most efficient and aligned with overall objectives and vision -> detractors say lower-levels of command feel less empowered and less motivated -decentralized authority allows lower-level managers to have some share of decision-making -> supporters say faster response mechanism, higher morale for lower level chains -> detractors point to potentially bad decisions and inconsistency across the board span of control: number of subordinates one manager has reporting to him (width) coordination of work effort: allocation of collaborative efforts between departments to ensure designs, development, distributions etc. are maximized nature of work: specific tasks required at the individual job level within a firm The Concept of Restructuring restructuring: need to change organizational structure or desired position in marketplace -generally occurs when mgmt. finds a disconnect from their intended strategy as a result of external / internal changes structural design: adjustments to organizational structure to ensure success execution: how will restructuring be implemented; subtle change or drastic moving communication: how this will be messaged to stakeholders involved Chapter 8 – Managing and Leading the Organization’s Talent -establish direction, mobilize action, and focus on development of the team market assessment and strategy development: determining a route / direction and implementing exactly how to follow that path business system design and development: determining maintaining inventory, stock maintenance Douglas He Comm 103 Sept. 10, 2012 financial resource management: establishing budget, allocating financial resources and ensuring all obligations / debt are met talent responsibility: interpreting the overall vision and mission, and ensuring everything happens according to schedule -managers must spend more time ensuring culture of collaboration and communication within organization ->ensures maximized motivation and thus production --------------------------------------------------------------------------------------------------------------------- The Employee Transformation Process -employees should feel valued and given opportunity to grow and excel, held accountable for their responsibilities and rewarded appropriately Investments into employees take the form of costs associated with: -preparing job specifications -hiring advertising agencies -interview and aptitude tests -orientation and training of employees, as well as relocation -hiring bonuses and job-related expenses (not to mention wages) -failure to provided right work environment, rewards, and recognition-based rewards will result in low motivation -> low productivity -> high employee turnover -> detraction from investment firm made Douglas He Comm 103 Sept. 10, 2012 Perceived Quality of Company -employees want to be part of an innovative and industry leader, that offers exciting challenges for the future -whenever firm undergoes victory, need to translate that into a win for the employees - > to instil pride and motivation Positive Work Environment Key Attributes of Position Fit with Employee’s Lifestyle -key for employees to and Reward Requirements understand how their role fits -employees need to into big picture of firm, to understand that personal level deliver a sense of purpose of compensation dependent on -feel job is a challenge for level of success company as a their current skills -> job whole enjoys enrichment / enhancement -benefits include wages, stock -good fit with superiors -> options, signing bonuses, and approval and recognition in a longevity bonuses positive manner --------------------------------------------------------------------------------------------------------------------- The Motivational Tool Kit T = Trust and Respect -employees need to feel valued and trusted in their tasks A = Approval, Praise, and Recognition -non-financial motivators are extremely in keeping employees motivated and eager to start new projects L = Lead by Example -willingness of mgmt. to work hard in the trenches with regular employees will create stronger bonds and relationships between levels of authority E = Enrichment -offering new projects and challenges for employees makes them feel valued and helps contribute more to meeting overall vision and goal N = Negotiation Skills Douglas He Comm 103 Sept. 10, 2012 -ability of mgmt. of creating environment that supports success -ability of mgmt. to communicate desired level of expectations for each employee to promote accountability and sense of teamwork T = Treasure -financial bonuses and performance-based bonuses will maximize productivity and tie employee wealth with success of the firm Frederick Taylor – Principles of Scientific Mgmt -finding most efficient techniques of labouring, and regulating that across the whole organization Abraham Maslow – Hierarchy of Needs physiological -> safety -> love -> self-esteem -> self-actualization Frederick Herzberg – Hygiene & Motivation Factors Hygiene – general working conditions (salary, job security), didn’t motivate, but if not evident -> would lead to dissatisfaction -> lower productivity level Motivators – achievement, recognition and level of interest in task -> true motivation -> higher productivity level Douglas MacGregor – Theory X and Theory Y Theory X – people inherently dislike work and will try to slack, prompting coercion and financial motivators Theory Y – workers are motivated beyond money, and will commit themselves if they feel valued by employers Rensis Likert – The Human Organization -firms must have confidence in employees -provide employees opportunity to partake in goal-setting process -grant employees truly cooperative environment where communication is consistent Victor Vroom- Expectancy Theory -if employees see meaningful outcome for their efforts, then they will work that much harder to achieve that goal, and receive appropriate level of reward --------------------------------------------------------------------------------------------------------------------- Douglas He Comm 103 Sept. 10, 2012 Managing Your Workforce -to be able to successfully organize, plan, develop, direct and lead the firm, mgmt. needs to fully understand the direction the organization is pursuing and the competitive advantages it hopes to achieve 1) Determine managerial style required to lead and achieve results 2) Understand what needs to be done (plan) 3) Identify focus of task and allocate resources accordingly (organize) 4) Identify competencies and capabilities team needs to improve (develop) 5) Use performance metrics to keep on track and measure objectives (direct) conceptual skills: visualize and communicate the big picture -> make employees understand their role in the big picture, and continually reinforce that message leadership skills: building system that encourages innovation and creativity, oozing charisma and leading by example -> placing organization’s needs above persona needs technical & analytical skills: mgmt. must have solid understanding of work needed to be done, and thus provide quantitative measurement metrics for perfor