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BU111 - All Notes up to Midterm!

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Wilfrid Laurier University
Leanne Hagarty

1 BU111 Lecture Notes – Pre-Midterm *All notes are supplemental and should be reviewed with the ppt.’s as well 3. Course Model & Environmental Analysis 9/12/2012 Critical success factors - Achieving financial performance o profits, profit goal, growth, cash flow (pays bills)  important in order to not close down and also grow o does not happen alone, rather, as a result of doing all the factors successfully - Meeting customer needs o understand their needs, anticipating needs, delivering and satisfying needs, going above and beyond, ultimately to ensure reoccurring revenue and create a competitive advantage, (brand loyalty) - Building quality products and services o build to the quality level expected by the type of customer, best bang for your buck (subjective quality - best quality for the price) - Encouraging innovation and creativity o innovating products and services to adapt to the changing needs of customers/market, innovative ways behind the scenes (fabrication, transportation… the things that actually get the product from idea to real) 9/17/2012 Critical success factors Cont’d - gaining employee commitment o people are foundation in organization  build organization on them o good commitment to work obviously benefits the company as a whole  more productive, pride in work quality, treat customers well and friendly, becomes more fiscally responsible (more of a sense of ownership at their level) - creating a distinctive competitive advantage o need to be offering something to customers that they wouldn‟t receive anywhere else  customers must value the unique product/service/quality of your organization or else it doesn‟t matter that you‟re different than the rest  gives you a basis which allows you to charge more, etc. o without unique and valued products/services than an organization will end up just competing in the market with the price (economics  price competition  not good for productivity, quality, etc.) 2 Diamond-E Framework - Management Preferences o Managers are human  have certain biases, faults, qualities, types of approaches, desires, preferences, etc. o Don‟t underestimate the power of management preferences  get a read on your managers preferences to really tune in to their way of approaching work and be able to work well with them - Organization o Culture, capabilities, structures, leadership style - Resources o Human, capital, and financial - Strategy o really define who/what/when/where/why/how for the organization as a whole o critical linking variable  links inside to the outside of the org. o IMPORTANT  all internal factors connect to each other, but finally connect to strategy  strategy connects interval to external o Org. can have a lot of money, capital, resources, etc… yet without a strategy an organization can‟t operate effectively Principle Logic - P&G (2000) – new CEO and new approach  too many products, too many brands  spread all the resources too thin = strategy didn‟t fit resources and, most importantly, the market - IKEA (consistency) – strong vision (families should be able to find affordable, well designed and well built furniture)… turns out his strategy correctly reflected an untouched market and the rest is history - Note: absolute alignment (diamond-e model) is not realistic outside of the board room Strategy-Environment Linkage - Digital camera market: canon vs. Kodak  involved huge risk in investing in new technology. Kodak didn‟t react (take the risk) soon enough  look what happened to Kodak and especially canon today 3 PEST - Political-Legal o All the ways the gov. in a particular country will regulate the way an org. does business (see elements) o Elements  Laws  a) product labeling (must have English and French, ingredients, etc.) b) wages c) how many business allowed (banks)  Taxes  incentives or disincentives to do or not do certain things. Gov. can use them to prohibit/lessen negative activities (taxes on club located in suburban area) or provoke good activities (subsidy to buy electric car)  Trade agreements (tariffs)  ex. Tax on Toyota‟s importing of all vehicles into Canada resulted into Toyota starting production in Canada itself (boost economy x2930u48342)  Political system & stability  whether or not the org. knows what it‟s in for (in terms of all the elements above). Canada = relatively easygoing in terms of what business can/can‟t do. Unrest in the gov. itself is too much instability/uncertainty for a strong customer base Influences costs, potential sales, and financial uncertainty 9/19/2012 PEST Cont’d - Economic o Essentially: do people have enough money/resources to afford/even want our products? o Elements  Economic growth – GDP and standard of living  more products and valuable products  Economic stability – inflation, unemployment  Trade balance – importing vs. exporting  National debt – government borrowing  Interest rates  high interest rates (not good interest like the money you make each month on your bank account) = discourages consumer borrowing and spending  Exchange rates  have impact on product‟s attractiveness and competitiveness (to foreign buyers) Influences costs, potential sales, and financial uncertainty - Social o Most elements are intangible and harder to track  though the stuff does definitely influence how people spend their money o Elements  Customs, values, attitudes, and demographic characteristics  Influences customer preferences 4  Influences worker attitudes and behaviours  loyalty, commitment to work (views differs around the world)  Influences standards of business conduct  Ethics, social responsibility, stakeholder management  some parts of the world, bribes are acceptable/very common… Canada? It‟s a crime and “unethical.” o Question: which industries do you think have benefitted the most/have an opportunity to benefit the most on the basis of “going green”?  Car industry – all the hybrid/electric cars  Reusable waterbottles  Waste management  Efficient appliances (furnace, toilets, air conditioner) Affects how we live, work, consume and produce - Technological o Elements  Internet affects buying, selling, communication  as individuals and as businesses  Information technologies affects a) information access  so much free and cheap access to info as consumers and business managers  one hand – good to get info on consumers. Other hand (bad) – they can get a lot of info on businesses b) inter-firm cooperation – keep suppliers close through internet c) cycle times  amount of time to get a new product out  Computer technologies have changed our products and how we design and build them  don‟t have to actually build a concept to test if it works, can just use software  Not limited to computers and information  not just “electronics,” also affects farming, journalism, sports, etc.  Example: GPS can impact the businesses that are off the beaten path and struggled with getting enough customers  don‟t have to move location now cause anyone can find it right from their phone Affects what we produce/what it can do, affects how we produce and how we sell Demands constant learning and scanning Questions from PEST - Do the economic conditions support my business? - What legal protection do I have or laws do I have to consider? - What demographic and social trends affect my business and how? - What technological forces affect me now and in the future? How do they assist or constrain? - What opportunities or threats does the environment possess? 5 Porter’s Five Forces - Used to look at a given industry - Revenue – expenses = profit (will look at how each force affects profit) - Suppliers o People you buy your inputs from o Fewer suppliers, high switching costs, low attractiveness of substitute suppliers, high threat of forward integration means = increased bargaining power as a supplier (can say to business who doesn‟t want to pay that much for your part: “Where else ya gonna go?”) o Bargaining power increases costs of inputs (inputs = what you export) o As a business owner – higher supplier cost obviously = higher expenses = less profit o Use strategic alliance (sit down with supplier and plan out an alliance that can benefit both partiers) or internal supply (buy out supplier –if have enough money and it makes sense- and make it for yourself) - Potential Entrants o Can cause big changes  new technology, less money for each existing business now, o Ease of entry = more intense competition (app. market = thousands of businesses and perfect competition) o Barriers = capital intensity, technology (patent it = lock it down), know-how (long history in market, established relationships with big/many firms, have special technology/workers that isn‟t/aren‟t available elsewhere), regulatory approval (banking, taxi services…Gov. controls it), brand loyalty to existing businesses, etc.  can‟t get into the gas industry cause the big 4 control it all. Impossible to get into a specialized market controlled by a monopoly. - Substitutes o Many substitutes for your product = increased competition in industry and make it tougher (may be competing with companies in other industries as well  glasses verses laser surgery – two totally diff. industries that substitute each other)  prescription drug industry, can‟t really go anywhere else to get a prescription drug o Puts ceiling on price that can be charged o Pressure increases as price of substitutes and switching costs decline 6 9/24/2012 - Buyers o Few or concentrated buyers, standardized products, low switching costs, discretionary purchases, extremely powerful companies = increased bargaining power o Reduces price that you can demand - Rivalry among existing firms “Nothing focuses the mind better than the constant sight of a competitor who wants to wipe you off the map.” - Wayne Calloway o Results in price competition and increased costs o Most powerful of five forces o Causes:  Many competitors of equal size/capability  perfect competition, everybody kept on their toes, not one dominating company  Growth rate of industry  growth rate is slow or sinking, see more perfect competition  Consumers switching costs  Products are commodities or are perishable (perishable: rotten or out of style)  more pressure to produce and clear out inventory quickly - competition Caveat: Power and relevance of a force will vary by industry - Value of Five Forces Model - The Five Forces that Shape Strategy Interview with Porter - o Positive vs. zero sum  positive sum = competition allows everyone to benefit, while zero sum = competition drags everyone down and no one really benefits - Questions to answer with the Five Forces analysis 1. Is the industry a realistic place for a new venture to enter? If yes, then... 2. Can we do a better job than incumbents (incumbents: established businesses in industry) at avoiding or diminishing factors that suppress industry profitability? 7 3. Is there a unique position we can pursue?  Dell came into PC world by going directly to the customer (first one to take this position) 4. Is there a superior business model that incumbents would find hard to duplicate? Some library databases (not found on google) o Standard and Poors NetAdvantage –  Provides Industry Trends, Industry Ratios, and lots of key industry data o GMID – market share data by company and brand; industry growth data o DataMonitor – five forces analysis and SWOT o FPInfomart – Canadian data Benefits of External Analysis Challenges of External Analysis o Trade-off – want to do lots of research and planning, but time is money  some point you‟ll have to take some action 4. Understanding Entrepreneurship 9/26/12 Definitions - New Venture – recently formed commercial organization that sells goods/services - Entrepreneurship – identifying an opportunity and accessing resources to capitalize on it 8 - Small business – owner-managed, not dominant in market, <100 employees o 97.8% of all businesses in Canada are small o Contribute >26% annually to GDP o Provide more jobs than large businesses o New ventures lead in new products and services Entrepreneurial Process - Influenced by PEST - Successful only when the entrepreneur, opportunity, and resources match o Need someone with perseverance, courage, motivates others, good speaker/presenter, comfortable, knows their stuff - Begins with the entrepreneur identifying an opportunity and then accessing resources Opportunity Recognition - Idea generation o Often paradigm shifts  apple computer – founders believed that people would want computers in their own homes (“IBMs” back then thought computers would always be bulky, complex machines… look what happened) o Originate in events relating to work or daily life, hobbies, chance happening - Screening o Weeding out bad ideas o Saves time, money o Ensures you have a viable idea with a competitive advantage Three-Step Screening Process Screening for Viability & Competitive Advantage 1. Idea creates or adds value for customer a. Solves a problem, meets a need, meets a need that consumers didn‟t know they needed until now b. Customer willing to pay for it* 2. Idea provides a competitive advantage that can be sustained a. Product unique in a valuable way/better than others i. How is it different and better from existing products and substitutes? ii. Are differences valuable to customers? 9 iii. Is it something that existing firms can easily do or may want to imitate?  can they copy you, take your idea, etc. * Can the idea be protected legally? 3. The idea is marketable and financially viable a. Are there enough customers who are willing to buy it? What is the market demand likely to be? b. Who are the key competitors and what are the forces that affect profitability? c. Is the market growing, shrinking, concentrated, fragmented? - Safety point: Does the idea have low exit costs? o longer time to profitability or greater up-front investment needed = riskier venture - How to Screen Evaluating your business opportunity 10 Developing the Opportunity - Business concept often changes from original (don‟t be narrow minded) o Incorporate information and research o Incorporate experience and customer feedback - Once business concept finalized, move to business plan o Concept will be “tweaked” as business plan evolves Accessing Resources - Bootstrapping – doing more with less o Make do with as few resources as possible o Use other peoples‟ resources where possible (trade, barter) o Find/use free stuff - Financial resources – Debt vs. Equity financing o Debt = interest and control  Sources – financial institutions, suppliers o Equity = no interest, less control (give investor a % of your business)  Sources – savings, love money, private investors, venture capitalists (venture caps - larger than private investors) 10/1/12 Social Entrepreneurs Definition: Society‟s change agents: creators of innovations that disrupt the status quo and transform our world for the better. "Social entrepreneurs are not content just to give a fish or teach how to fish. They will not rest until they have revolutionized the fishing industry." — Bill Drayton, CEO, Chair and Founder of Ashoka “Social Enterprises generate social value while operating with the financial discipline, determination & innovation of private sector businesses.” - Alter, 2006 Key Facets of Social Entrepreneurs - Help overcome market inequities/failures (consumers don‟t have financial abilities or political power) o How? Entrepreneurs seek innovative solutions to the world‟s toughest problems o Often in areas of education, health, environment - Social value as the primary objective o Economic value is a by-product (usually the end goal of a business… social entrepreneurs just see profit as a means to an end  social value) o Key difference! - Results in companies with social missions - Form of business can vary o Importance of attaining social value proposition through the legal business form (not-for-profit, for-profit, charity) 11 - Accountability to community stakeholders o Rather than only private investors - Importance of bootstrapping!  the building of a business from nothing, with minimum outside capital Examples of Social Entrepreneurs - Prof. Muhammad
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