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f12 BU111 Midterm Review Guide 1-1.doc

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Leanne Hagarty

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BUSINESS 111 FALL 2012 MIDTERM REVIEW GUIDE th Midterm Date: SATURDAY, OCTOBER 20 , 2012 Midterm Time: 9:00 A.M. TO 11:30 A.M. Writing Locations to be posted on course website. Important Notice: Anyone who is not able to write the exam on the scheduled date must provide documentation validating his/her absence, i.e. doctor’s note confirming illness and inability to write exam dated the day of the exam. Once documentation is received and approved by your professor, the value of your midterm will be added to your final exam. If valid documentation is not provided, the midterm mark will be a zero. Approximate mark allocation: 20 Multiple Choice questions = 20 marks 21 Short Answer questions, 2 to 5 marks each = 60 marks TOPICS TO BE COVERED: 1. The relationship between the firm and its external environment - Course model and critical success factors: - Critical Success Factors - what they are: o achieving financial performance o meeting customer needs o building quality products and services o encouraging innovation and creativity o gaining employee commitment o creating a distinctive competitive advantage - why they are important: because all 6 factors come together to determine the success of your company and the highest success you can achieve - how they connect to each other: to create a distinctive competitive advantage they need to gain employee commitment, so they need to encourage innovation and creativity which builds quality products and services to meets customer needs to achieve financial performance - Diamond-E model: - key variables: o management preferences o organization o strategy o resources o external: environment - impact of internal variables on strategy o you want alignment like management preference and resources and organization to match up in your strategy; your strategy need to be consistent and follow those principles, it needs to be realistic - principal logic and examples: - Principal logic: o consistency or alignment of the Diamond-E internal variables (first task focuses on external) o examples:  P&G (inconsistent)  Ikea (Consistent) 2. External analysis - what it is: scans and evaluates the external environment and mangers determine opportunities (positive external trends or changes) and threats (negative external trends or changes) - how to conduct one: o PEST (General Environment) o Porter's Five Forces (Specific Environment)  Objectives/values:  determines profitability of the industry  ease of entry/barriers to entry  how to and if it can carve out a niche (attractive industry) • *niche = small target market (specific) - general vs. specific environments: o Porter's 5 = analyzing one specific industry (your specific industry) thus it is the specific environment external analysis o PEST = general external environment which will only determines the general trends and changes of all businesses in all industries - benefits and challenges of conducting an external analysis: o Benefits: makes managers proactive, provides information used in planning, helps organization get needed resources, helps organization cope with uncertainty (ie. To prevent strikes) and improves consistency and performance o Challenges: forecasts and trend analysis is imperfect (not working with facts all the time), rapidly changing environment is hard to keep up with (everything is changing at a rapid pace) and it is time consuming. - PEST factors: o Political-Legal:  laws and regulations (how they operate)  taxes (gives incentive)  trade agreements or conditions  political system (dictates the level of protection for domestic goods)  political stability (capitalistic or socialistic is an example)  ie. banking industry is concentrated by the big 5 banks due to Bank Act (example of regulation = bank act) o Economic  economic growth – GDP and standard of living  economic stability – inflation, unemployment  trade balance – importing vs. exporting  national debt – govn't borrowing  interest rates  exchange rates - impact on business o Political-Legal: govn't can create incentives, constraints, on supportive/bail out when needed; affects uncertainty, risk, and costs faced by firm - Porter’s five forces model: - explanation of each force’s impact on industry profitability: o ideally you want more bargaining power over suppliers (ie. Lululemon is dominant in the yoga industry (niche) that suppliers can't lose you, thus they have more bargaining power) o if switching costs are low, you have more bargaining power than your suppliers because they know you can easily substitute them o if you have a high switching costs (then your supplies know you can't switch) - methods of reducing the impact of each force: o Suppliers:  don't give a one single supplier too much power (diversify), be a big customer like Lululemon (big client) o Potential Entrants: (ie. Green Gym and Bank Act):  govn't standards, regulations o Buyers:  - industry examples 3. Entrepreneurship* - what it is: o Entrepreneurship: identifying an opportunity and accessing resources and capitalizing on it o Small Businesses: less than 100employees, 97.8% of all businesses in Canada are small and makes up 26% of annual GDP o New Venture: recently formed commercial organization that sells goods/services - what the key elements are: o - and how the entrepreneurship process works o Influenced by PEST (an entrepreneur must use PEST to screen the external environment to ensure that opportunity and resources match up and this will ultimately lead to success) o Successful only when entrepreneurs, opportunity, and resources match (we define success if they can capitalize on it) o Begins with entrepreneur identifying an opportunity then accessing resources - how to screen and evaluate opportunities for viability and competitive advantage o How to screen: (screening weeds out bad ideas, ensure viability and competitive advantage) o Benefit: saves time and money in the long-run o use PEST to access environment – if the external environment is supportive of the idea/opportunity? (see if the industry is attractive to go into) o use PORTER'S 5 to determine  check barriers/ease of entry  profitability  should they enter the industry/good position within the industry/ease of entry in industry o PEST AND 5 FIVES FOR MARKET EXPLORATION: ensure if idea is good, unique? o Research of Marketing (ex. Library database)  evaluate market size see where it is in the market cycle (growing or shrinking), it helps you analyze the consumer pool or target market size (big, small, niche, concentrated (big competition?)) and expert opinion and identify trends in the environment o Research Expert opinion in the industry Key Trends in environment and the industry o How to evaluate opportunities for for viability and competitive advantage (REFER TO CHART IN PPT) 1. Does the product add value, is it resolving customer needs, and is are customers willing to pay for it 2. Is there a competitive advantage for your product and is it sustainable, is it unique, can it be copied, is it protected, regulations, standards? ie. Dell and HP selling computers while HP has to go through distributors but Dell came up with the idea of selling directly to consumers which is hard for HP to copy because they have strong relationships with their distributors like Best Buy – so Dell has a competitive advantage (hard to copy process)  is there zero-sum competition (price war because you guys don't have any unique factors) or positive-sum competition (there is a niche to carve out; win-win; they're all having their own profits) 3. Competition – is it marketable or financially viable (big or small market; size of target market and market demand; how concentrated(few powerful player) or fragmented your market is (lots of smaller players); place in market cycle; growing/shrinking (not ideal)  identify key competition + forces affecting profit? - how to access entrepreneurship resources: bootstrapping and financial resources - bootstrapping, pros and cons of financing options o bootstrapping – doing with less, you want to access other's ppl resources where possible (ie. Incubators = free resources, they are professionals that walk you through your new venture – like a baby incubator that helps babies (new life) survive) o Financial resources – debt vs. equity financing  Debt: you always have to pay interest (legal obligation) to banks and financial institutions –> you have more control over new venture  Equity financing – savings, love money, private investors, venture capitalists –> they have says in your company so you have less control - social entrepreneurship: - what it is: a business operation with a social motive; economic factors (profits/money side) = byproduct - key facets of social entrepreneur: primary objective
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