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BU111 Midterm Review

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Leanne Hagarty

BU111 Midterm Review Critical Success Factors - Achieving financial performance - Building quality products and services - Creating a distinctive competitive advantage - Meeting customer needs - Encouraging innovation and creativity - Gaining employee commitment Diamond-E Framework Management Preferences: Managers = natural bias, leniencies, desires & approaches, aggressive or not Organization: Company structure, capabilities, leadership style, culture Resources: Human, capital, financial resources Strategy: What the business is going after, not going after (needed resources, organizational capabilities, management preferences) Strategy = key to connecting the environment to management & resources Dictated by management preferences Principle logic: Importance of consistency between variables i.e. Proctor & Gamble, IKEA First Task: Deal with strategy-environment linkage; asses forces at work & their implicaations Strategy-environment Linkage: i.e. Canon vs. Kodak in the digital camera market 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; specific environment; affects all businesses affects industry participants PEST Model Porter's Five Forces 1. Evaluate external environment, look forward to anticipate customer needs; most cannot look farther than 2-3 years 2. Positive trend of threat? PEST Model P - Political Legal Elements: - Gov’t = incentives, constraint, support/bail out ~ affects uncertainty, risk, & cost faced by firm - Laws & Regulations - product label, minimum wage and number of competitors in an industry - Taxes – Discourages and encourages behavior - Trade agreements or conditions – Affecting imports & exports - Political System – Is the current system friendly to businesses? (Capitalistic & a free market) - Political Stability - Stable and predictable? Bus. need to know what’s happening in the future E – Economic: - This influences costs, potential sales, and financial uncertainty. - Economic Growth – GDP, want GDP to be surpassing the growth of population, which is related to standard of living. Is the economy steady or bumpy? - Economic Stability – Inflation? Are wages increasing at the same rate? Consider unemployment. - Trade Balance – Exporting more = keeping money in economy (Trade surplus), Importing more = putting money into others’ economies (Trade deficit) - National Debt – Debt = gov’t budget is paying off the debt /interest, not providing services to the public. Gov’t is competing with businesses for loans from the bank - Interest Rates – ^ interest rates = less consumers/businesses will feel confident in borrowing - Exchange Rates – impact the attractiveness of products in relationship to other countries S- Social: - Deeply influence customer behavior and are always changing - Affect how we live, work, consume & produce - Customs, values, attitudes, & demographics - Influences customer preferences - Influences work attitudes & behaviors – Relationship between employee & employer - Influences standards of business conduct – Ethics, social responsibility, & stakeholder management. Ethics = believing what is right/wrong; difficult to manage what is legal, right, and in between T- Technological: - Affects what we produce, what we can do, and how we produce & sell, demands constant learning and scanning - Location of company = not as significant, i.e. GPS/internet etc. - Internet - affects buying, selling, communication, etc. - Information technology - affects information access, inter-firm cooperation, cycle times - Computer technology - Changed our products and how we design and build, Not limited to computers and information Porter’s Five Forces Suppliers - Fewer suppliers or high switching costs means = increased bargaining power - Bargaining power increases costs of inputs - Use strategic alliance or internal supply Potential Entrants - Can cause big changes - Ease of entry = more intense competition - Barriers = capital intensity, technology, know-how, regulatory approval, brand loyalty etc. Substitutes - Many substitutes = increased competition - Puts ceiling on price that can be charged - Pressure increases as price of substitutes and switching costs decline Buyers - Few or concentrated buyers, standardized products, low switching costs, discretionary purchases = increased bargaining power - Reduces price that you can demand Rivalry among existing firms - Results in price competition and increased costs - Most powerful of five forces - Causes: o Many competitors of equal size/capability o Growth rate of industry o Consumers switching costs o Products are commodities or are perishable - Caveat: Power and relevance of a force will vary by industry Helps determine whether Helps determine whether aand/or how it can carve out an Predicts industry profitabifirm should enter a particulattractive position in that industry industry Five Forces Analysis Questions 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 at avoiding or diminishing factors that suppress industry profitability? 3. Is there a unique position we can pursue? 4. Is there a superior business model that incumbents would find hard to duplicate? Benefits of External Analysis Provides Helps organization Makes managers proactive information used get needed in planning resources Helps organization Improves cope with consistency and uncertainty performance Challenges of External Analysis Rapidly Forecasts changing and trend environme nt hard to analyses imperfect keep up with Time consuming Entrepreneurship - New Venture – recently formed commercial organization that sells goods/services - Entrepreneurship – identifying an opportunity and accessing resources to capitalize on it - 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 Entrepreneurship Process - Influenced by PEST - Successful only when entrepreneur, opportunity, and resources match - Begins with entrepreneur identifying an opportunity then accessing resources Opportunity Recognition - Idea generation - Often paradigm shifts - Originate in events relating to work or daily life, hobbies, chance happening - i.e. Apple Computers Screening - Weeding out bad ideas - Saves time, money - Ensures you have a viable idea with a competitive advantage Screening Process 1. Idea creates/adds value for customer Solves a problem or meets a need Customer willing to pay for it 2. Competit
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