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BU111 Study Guide - Midterm Guide: Pest Analysis, Bill Drayton, Switching Barriers

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Roopa Reddy
Study Guide

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BU111 Mid-Term study notes
The relationship between the Firm and its External Environment
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
DiamondE framework
Management Preferences
Organization Strategy Environment
- Laws, regulations
- Taxes
- Trade agreements or conditions
- Political system
- Political stability
- Economic growth GDP and standard of living
- Economic stability inflation, unemployment
- Trade balance importing vs. exporting
- National Debt government borrowing
- Interest rates
- Exchange rates
- Customs, values, attitudes, and demographic characteristics
- Influences customer preferences

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- Influences workers attitudes and behaviours
- Influences standards of business conduct
- Ethics, social responsibility, stakeholder management
- Internet affects buying, selling, communication
- Information technologies affect 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
Porters Five Forces
Rivalry among existing firms
- Results in price competition and increased costs
- Most powerful of the five forces
- Many competitors of equal size and capability
- Growth rate of industry
- Consumers switch costs
- Products are commodities or are perishable
- Many substitutes = increased competition
- Puts ceiling on price that can be charged
- Pressure increase as price of substitutes an switching costs decline
- Few or concentrated buyers, standardized products, low switching costs, discretionary
purchases = increased bargaining power
- Reduces price that you can demand
- Fewer suppliers or high switching costs means = increased bargaining power
- Bargaining power increases cost of inputs
- Use strategic alliance or internal supply

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Potential Entrants
- Can cause big changes
- Ease of entry = more intensity, technology, know-how, regulatory approval, brand
loyalty etc.
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
How to do an external analysis
General environment
- PEST model considers political, economic, social/demographic, and technological
- Identifies general trends and changes
Specific Environment
- Porters Five Forces analyze five important sources of competitive pressure and
intensity; predicts profitability
Benefits of an External Analysis
- Makes managers proactive
- Provides information used in planning
- Helps organization get needed resources
- Helps organization cope with uncertainty
- Improves consistency and performance
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