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Midterm review hagey hall (front of campus, main psych building) HH1101 (science building).pdf

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Roopa Reddy

Midterm review hagey hall (front of campus, main psych building) HH1101 (science building) September-11-12 9:28 PM TOPICS TO BE COVERED: The relationship between the firm and its external environment - Course model and critical success factors: what they are, why they are important, how they connect to each other - o 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 WHY 1) required for business to be sustainable 2) customers provide revenue/sales 3) encourages customers to buy products/services , builds reputation 4) businesses should be constantly changing and adapting to the environment 5) employees are the driving force behind the business 6) to encourage customers and outcompete competitors HOW 1) generating income/revenue 2) reliability, variety, timeliness, quality, safety 3) quality assurance 4) training programs, incentives, open forum 5) incentive plans, training, participation in management decision making 6) adding value achieving one critical success factors ○ - Diamond-E model: key variables, impact of internal variables on strategy, principal logic and examples o Strategy: what opportunities the business is pursuing - Identifies needed resources, organization, management styles - It is a critical linking variable - Principal logic -consistency or alignment o Principal logic, importance of consistency between variables (P&G strategy inconsistent, Ikea consistent) - Absolute alignment is not realistic BU111 lecture Page 1 Absolute alignment is not realistic - External analysis - what it is, how to conduct one, general vs. specific environments, benefits and challenges of conducting one o Process of scanning and evaluating the external environment -> how managers determine opportunities and threats -> firms face multiple environments (general and specific) o General environment - use PEST, it identifies general trends and changes o Specific environment - use Porters Five Forces Benefits external analysis - makes managers proactive - provides info used in planning - helps organization get needed resources - helps organization cope with uncertainty - improves consistency and performance Disadvantages of external analysis - costly - time consuming - environment constantly changing - forecasts and trend analysis imperfect - PEST factors: elements, impact on business PEST FACTORS FACTOR DEFINITION EFFECTS ON BUSINESS POLITICAL Laws, regulations Taxes Trade/agreements Political systems Political stability ECONOMIC Economic growth Trade balance National debt Economic stability Interest rates Exchange rates SOCIAL Customs, values, and demographics TECHNOLOGY Internet Political-Legal - Laws, regulations - Taxes - Trade agreements or conditions - Political system - Political stability Economic - economic growth - GDP and standard of living ○ high GDP usually indicates a high standard of living ○ not always valid - Economic stability - inflation, unemployment ○ make economy less stable general rise in prices BU111 lecture Page 2 ○ general rise in prices ○ there is hyper-inflation - Trade Balance - importing vs. exporting - National debt - government borrowing ○ leads to recessions - interest rates ○ bank of s sets a prime rate of interest ○ when interest rates go up it becomes more expensive to borrow - exchange rates ○ the value of the canadian dollar compared to other currencies Social - customs, values, attitudes, and demographic characteristics - influences customer preferences - influences worker attitudes and behaviours - influences standards of business conduct ○ ethics, social responsibility, stakeholder management Technological - internet affects buying, selling, communication - information technologies affects information access, 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 is can do, affects how we produce and how we sell - demands constant learning and scanning - Porter’s five forces model: explanation of each force’s impact on industry profitability, methods of reducing the impact of each force, industry examples o o how competitive and profitable an industry is potential entrants value: predicts industry profitability, helps determine whether a firm should enter a particular industry, o Rivalry between existing firms - Results in price competition and high costs - Most powerful - Causes ○ Many competitors of equal size/capability ○ Growth rate of industry ○ Consumers switching costs ○ Products are commodities or are perishable o Substitutes - Many substitutes = increased competition - Puts ceiling on price that can be charged - Pressure increases as price of substitutes and switching costs decline o Buyers - Few or concentrated buyers, standardized products, low switching costs, discretionary purchases = bargaining power - Reduces price that you can demand o Suppliers - Fewer suppliers or high switching costs = increased bargaining power - Bargaining power increases costs of inputs o Potential entrants - Can cause big changes BU111 lecture Page 3 - Can cause big changes - Ease of entry = more intense competition - Barriers = capital intensity, technology, know-how, regulatory approval, brand loyalty etc. o Value of model o `predicts industry profitability o Helps determine whether a firm should enter a particular industry o Helps determine whether and/or how it can carve out an attractive position in that industry Entrepreneurship - what it is, what the key elements are and how the entrepreneurship process works Small Business: owner managed, not dominant in market, <100 employees New Venture: recently formed commercial organization that sells goods/services Paradigm shift: abandoning traditional assumption and how things work or ought to be and seeing what others do not o Entrepreneur brings skill, knowledge, energy to business (organizational capabilities) - opportunity comes from analysis of environment o - new venture to be successful, internal elements need to be consistent and needs to align with external factors o - external factors always needs to work with environment even if venture is a good idea protect yourself, make business plan, ensure venture is good idea (profitability), before chasing after resources o Idea generation - Often paradigm shifts - Originate in events relating to work or daily life hobbies, chance happening o Screening - Weeding out bad ideas - Saves time, money - Ensures you have a viable idea with a competitive advantage o e.g. Apple was originally a paradigm, small convenient laptops rather than huge ugly desktops 3 MAIN STEPS IN ENTREPRENEURIAL PROCESS • entrepreneur – must match in knowledge, experience and interest • opportunity – good idea • resources - how to screen and evaluate opportunities for viability and competitive advantage o ideas ceates or adds value – satisfies previously unmet need or resolves problems that customer is willing to pay for o idea has a sustainable competitive advantage o idea is marketable and financially viable market size>? Key competitors? Barriers to entry? Fragmented or growing? o safety – is there a low exit cost 1. Idea creates or adds value for customer • Solves a problem, meets a need • Customer willing to pay for it 2. Idea provides a competitive advantage that can be sustained • Product unique in a valuable way/better than others • How is it different and better from existing products and substitutes • Are the differences valuable to customers? • Is it something that existing firms could easily do or want to imitate? • Can the idea be protected legally? • It can be a product or service • Uniqueness needs to be something cuztomers are willing to pay for. • e.g. women delivering mail in their underwear, not logical, whoever delivers mail in everyday life is irrelevant 3. The idea is marketable and financially viable • Are there enough customers who are willing to buy it? What is the market demand likely to be? • Who are the key competition and what are the forces that affect profitability? • Is the market growing shrining, concentrated, fragmented? • Safety point- does the idea have low exit costs ○ Longer time to profitability or greater up-front investment needed = riskier venture • Growing markets are better because crazy amounts of consumers will be buying in the market o Use PEST analysis to assess environment o Use five forces to determine ease of entry and profitability BU111 lecture Page 4 o Use five forces to determine ease of entry and profitability o Use research of market (library databases) to evaluate how big your market is and whether it's growing shrining or stagnant o Research expert opinions o Identify and discuss how key trents in the environment and industry affect your idea o - how to access entrepreneurship resources, bootstrapping, pros and cons of financing options o Bootstrapping - doing more with less • Make do with as few resources as possible • Use other people's resources where possible • Find/use free stuff o Financial resources - debt vs. equity financing • Debt = interest and control ○ Sources - financial institutions, suppliers • Equity = no interest, less control ○ Sources - savings, love money, private investors, venture capitalists - social entrepreneurship: what it is, key facets, how it compares to traditional entrepreneurship, examples o Entrepreneurs seeking innovative solutions to some of the world's (society's) toughest problems o On a spectrum between non-profit and for-profit organizations
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