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BUSINESS 111 MIDTERM REVIEW GUIDE.docx

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Department
Business
Course
BU111
Professor
Leanne Hagarty
Semester
Summer

Description
BUSINESS 111 MIDTERM REVIEW GUIDE th Midterm Date: Saturday June 15 , 2013 Midterm Time: 1:00pm – 3:30pm Writing Location: P1017 Approx: 20 Multiple Choice questions = 20 marks Approx: 21 Short Answer questions, 2 to 5 marks each = 60 marks Course Model: The relationship between the firm and its external environment: Critical Success Factors: What they are, why they are important, how they connect to each other? Critical Success Factors are the factors that need to be fulfilled in order to be successful. The 6 factors are:  A chieving financial performance o Need capital to survive  M eeting customer needs o Needs to satisfy customer, repeat sales o Can‟t achieve financial performance without it  B uilding quality products and services o Match quality to needs of customer met and relative to price o Customer not satisfied, switches to substitute products  E ncourage creativity and innovation o Everyone wants the next big thing o Technology is constantly advancing o Need to be progressive, can‟t lack behind competition  G ain employee commitment o Employees think beyond self interest o Loyal employees lead to low recruitment and training cost o If employees are happier they are more productive and come across more success  C reate a distinctive competitive advantage o Offering something others don‟t o Adds value to the customer and is unique Connection to all 6: By encouraging creativity and innovation, the company will gain employee commitment. By encouraging creativity and innovation you can create a distinctive competitive advantage. This will help build quality product and services that will meet customer needs, all leading up to achieving financial performance. Diamond-E Model: Key variables, impact of variables on strategy, principle logic and examples?  Provides a link from external environment through strategic plan to connect to internal environment  Inside things to produce outside things  Key variables: o S trategy – opportunity business is pursuing  Business plan created to pursue a goal  Determines resources, organization capabilities and management requirements  Based off research/info from environment  Any variable can restrain or drive your strategy  PRINCIPLE LOGIC – CONSISTENCY/ALLIGNMENT IN VARIABLES (BOTH INTERNALLY AND EXTERNALLY)  Examples: o P&G – Inconsistent  Strategy to explode with a bunch of new products  Led to lack of resources  Reduced strategy to basic products o IKEA – Consistent  Strategy – simple and affordable furniture  Resources supported business plan  Consistent internal and external environment  FIRST TASK – deal with strategy environment linkage  Assess what you have to work with (environment) and what you can do with it  Then assess all internal factors o Example:  Canon  Assessed environment, noticed digital tech was on the rise and created a strategy that aligned with the environment  Kodak  Ignored environment and stuck with film  Failure to assess environment led to failure of business o BIGGEST MISTAKE OF MANAGERS:  Didn‟t adjust to environment  Took too long o M anagement Preferences  Preferences of people doing research into external environment  Route of idea, steps to success o O rganization  Leadership and structure of business  Two structures:  Bureaucratic – follows a channel to the top o Long time to make decisions  Fast and leveled o Quick decisions, managers and employees of different levels have permission to make decisions o R esources  Money, people (knowledge), machinery o E nvironment  Demand can create competitive advantage  Market buyers pressure firms to innovate External Analysis What is it, how to conduct one, general vs. specific environments, benefits and challenges of conducting one?  What is it: o Scan/evaluate external environment o Managers determine opportunities and threats by external trends or changes  How to conduct one: o General environment  PEST model  Identifies general trends and changes o Specific environment  Porter‟s Five Forces  Predicts profitability of industry o Look for data, statistics, trends, forecasts, expert opinions, etc.  Firms face multiple environments: o General environment – affects all businesses  PEST  Does environment as a whole have more negative or positive factors o Specific environment – affects industry participants  Porters Five Forces  5 important sources of competitive pressure and intensity that predict profitability  PEST: o P olitical-Legal – government can create incentives, constraints, or support/bail out when needed. Affects uncertainty, risk and costs faced by firm  Elements:  Laws and regulations o Labour laws, minimum wage  Taxes o To encourage/discourage certain actions or make money  Example:  Carbon Tax – to reduce carbon emissions  T rade agreements or conditions o International trades and globalization o Trade agreements:  NAFTA  EU o Conditions:  Tariffs – tax on imported/exported goods  Quotas – limits to amounts of goods allowed to bring in  Both used to keep more domestic products in the economy  P olitical System o Socialist – government had lots of control  Closed system o Capitalist – business controls behaviour in line with laws/regulations  More open system  P olitical Stability o War? o Can lead to change in party  Different taxes  Business laws  Social structure o E conomic – influences cost, potential sales and financial uncertainty  Elements:  N ational Debt o Government debts  Interest Rates o Higher interest rates, lower spending  Money worth more in future o Lower interest rates, higher spending  T rade Balance o Difference between exports and imports  Negative balance of trade – more imports than exports  Less domestic manufacturing  Surplus better for economy  E xchange Rates o Affects international trades o Affects attractiveness and competitiveness  E conomic Growth o GDP – wealth of country  Comes into question because adds costs or wealth from manmade disasters, doesn‟t increase standard of living continuously  Example: o British Petroleum – clean up costs added to GDP  Growth is generally good  E conomic Stability o Stability – wealth, job creation, stabilized over time  Inflation  Reduce worth of dollar  Unemployment  Higher unemployment = more unstable o S ocial – affects how we live, work, consumer and produce  Elements:  C ustoms, Values, Attitudes and Demographic Characteristics o Customs – different products and ways for different people o Values – different levels of importance to different people o Demographic – more than just age, shows influence of needs  Have to take into consideration depending where you are trying to sell  Influences Customer Preferences o Current trends o Constantly changing with technological advancements  Influences worker attitudes and behaviours o Interest in job  Influences standards of business conduct o Ethics – right or wrong o Social responsibility – how much and for what? o Stakeholder management o T echnological – affects what we produce/what it can do, affects how we produce and how we sell. Demands constant learning and scanning  Elements:  Internet affects buying, selling, communication o Can sell whatever o Companies can sell across the world from one place o May lead to disintermediation  Buyer buys directly from wholesaler, cuts out middle man  N ot limited to computers and information o Anything that changes the way we do things or advances it  Information technologies affects information access, inter- firm cooperation, cycle times o Information Access  Information at your fingertips  Affects competition, can‟t hide anything o Inter-Firm Cooperation  Allows for communication between competitors o Cycle Times  Amount of time to take raw materials and turn it into a sold product  C omputer technologies have changed our products and how we design and build o Technology advances products for more convenience  Questions to answer from PEST: o Do economical conditions support my business? o What legal protection and laws do I have to consider? o What demographic and social trend affect my business and how? o What technological forces affect me now and in the future? How do they assist or constrain? o What opportunities or threats does the environment possess?  Porter‟s Five Forces o P otential Entrants  Can cause big changes  Easier to enter means more intense competition  Barriers of entry – capital intensity, technology, know-how, regulatory approval, brand loyalty, etc.  Capital Intensity – amount of money  Brand Loyalty – loyal to a brand  Know-How – understanding of task  RegulatoryApproval – meets laws/regulations  Technology – knowledge, resources o Really loyal when you call product by brand name  Example:  Kleenex – tissue  Q-tip – cotton swab o Suppliers  Fewer suppliers or high switching costs means increased bargaining power  Bargaining power increases cost of inputs  High threat of forward integration   Protect yourself by:  Strategic Alliance o Relationship with supplier where both benefit from each other‟s business and support each other  Internal Supply o Cut out middle person if not needed and then you don‟t have to compete with them o R ivalry among existing firms  Results in price competition and increased costs  More people demanding same supplies  Most powerful of five forces  Causes:  Consumer‟s switching costs o If costs are low, less restrain from switching  M any competitors of equal size/capability  Products are commodities or are perishable o Product sustainable or obsolete  Growth rate of industry o Growth rate increasing  More money available o B uyers  Few or concentrated buyers, standardized products, low switching costs, discretionary purchases = increased bargaining power  Standardized products – products that don‟t have significant changes in its composition  Reduces price that you can demand o S ubstitutes  Many substitutes means more competition  Puts ceiling on prices you can charge  Price competition leads to less profits  Pressure increases as price of substitutes and switching costs decline  Harder to hold business  Porter‟s Five Forces Video: o Use model to determine profitability o Determine underlying driving forces o All industries are different o Airline business = Sexy but unprofitable  Easy to rent plane and spot at airports Helps determine Predicts industry whether a firm should whether and/or how it profitability enter a particular can carve out an industry attractive position in that industry  Benefits of External Analysis: o H elps organization get needed resources  Look forward to acquire what is necessary o H elps organization cope with uncertainty  World is constantly changing  Prepare instead of being shocked and struggling to adapt o P rovide information used in planning  Use findings to create strategy o I mproves consistency and performance  Being more prepared leads to better results o K eeps managers proactive  Look ahead for threats/opportunities  Negatives of External Analysis: o F orecasts and trend analyses imperfect  Trends aren‟t always accurate  Consumer preferences constantly change  Need to plan for when there is no opportunities o R apidly changing environment hard to keep up with  Balance time between managing company and assessing environment  Assess where it counts o T ime consuming  Manage time efficiently and effectively  Time = Money Entrepreneurship What is it, what are the key elements and how the entrepreneurship process works?  Entrepreneurship – the process of identifying an opportunity in the marketplace and accessing resourced needed to capitalize on it  Entrepreneurial process influenced by PEST  Key elements: o Identify opportunity  Find weakness in market o Access resources  Identify resources needed to fulfill the solution o Entrepreneur  Use knowledge and expertise to implement strategy How to screen and evaluate opportunities for viability and competitive advantage?  Opportunity Recognition o Idea Generation  Often paradigm shifts  Find new uses for a product or a new product to do new tasks  Originates in events relating to work or daily life, hobbies, chance happening  Better when employees are trusted and like their jobs o People are more engaged in work o Screening Process  Weeds out bad ideas  Saves money and time  Ensures idea is viable and competitive o 3-Step Screening Process (Green Gym) (1) Idea creates or adds value for customers a. Solves a problem not being met i. Solves monetary problem = no gym required ii. Solves obesity b. Customers willing to pay for it i. Free to customers ii. Municipalities willing to pay for it (2) Idea provides a competitive advantage that can be sustained a. Unique in a valuable way i. Different and better from existing products/substitutes a. Safety regulation b. Made in Canada b. Differences valuable to customer a. More safe to use c. Can existing firms easily imitate? i. Any legal protection? a. It will take a bit of time to adjust to new safety standards and it will also increase costs of making machinery b. Protected by safety standards (3) The idea is marketable and financially viable a. Enough customers willing to buy? What is demand likely to be? i. Yes ii. Places that both one, called back later to buy additional units b. Key competitors and forces on profitability? i. China a. No impact on profitability because their machinery doesn‟t meet the f Canadian Safety Standards b. Market growth? ii. Determines industry rivals decisions a. Growing i. Rivals gain some market share and lose some b. Shrinking i. Rivals are more serious 1. Growing at a slow pace c. SAFETY POINT: Does idea have low exit costs? i. Longer time till profitability or higher up-front investment = more riskier venture  Developing Opportunity o Business concept often changes from original form  Incorporate information and research  Incorporate experience and customer feedback o Once business concept is finalized, move to business plan  Concept will be “tweaked” as business plan evolves  Either tweak idea or plan  Evaluating Business Opportunity: Criterion Highest Potential Lowest Potential Product Changes way people live, Incremental work, learn, etc.; improvement only; one- recurring revenue time revenue Customers Reachable Loyal to others; unreachable Value added High Low; minimal market impact Market structure Imperfect; fragmented Highly concentrated, competition mature Market Large and growing Small and/or declining Incumbents‟ At or near full capacity Undercapacity Production capacity Barriers to entry Low, competition slow or High, competition stiff, napping, have or can gain can‟t gain protection, protection, have needed hard to tap needed networks networks  How to screen for NV: o Use PEST analysis and assess environment  Is idea feasible  Is environment supportive of idea o Use Five Forces to determine ease of entry and profitability of industry  Need to have weak forces in competition to be profitable o Use Five Forces, PEST and market exploration to ensure uniqueness of idea  Make sure you have a sustainable competitive advantage o Use research of market to evaluate how big your market is and its stage in growth  Research Tools:  Standard and Poors NetAdvantage o Provides industry trends, industry ratios and lots of key industry data  GMID o Market share data by company and brand o Industry growth data  Marketline (used to be called DataMonitor) o Five forces analysis and SWOT  FPInfomart o Canadian data  Research to find profitability o Research expert opinions in the industry  Research for advice and background knowledge o Identify and discuss how key trends in the environment and the industry affect your idea  Find opportunities and threats and adapt for success How to access entrepreneurship resources, bootstrapping, pros and cons of financing options?  Entrepreneurship resources: o Bootstrapping – doing more with less  Make do with as few resources as possible  Use other peoples‟ resources when possible  Find/use free stuff  Legal advice o Financial Resources:  Debt Financing  Must pay interest on loan, but don‟t lose any control of company  If you don‟t pay interest you have to return loan, if you don‟t return loan bank takes your collateral  Two main sources of loans: o Bank o Suppliers  Products on credit  Equity Financing  No interest, but sell pieces of ownership o Less control  Sources of money: o Savings o Love money o Private investors o Venture capitalists Social Entrepreneurship: What is it, how it compares to “for-profit” businesses, examples?  Social entrepreneurs – society‟s change agents, creators of innovations that disrupt the status quo and transform our world for the better  Key Facets of Social Entrepreneurs: o Help overcome market inequalities/failures  Entrepreneurs seeks innovative solutions to the world‟s toughest problems  Often in areas of education, health and environment o Social value as primary objective  Economic value is by-product  Re-invested in company for increase in efficiency and effectiveness o Results in companies with social missions o Forms of business can vary  Importance of attaining social value proposition through the legal business form o Accountability to community stakeholders  Not only private investors o Importance of bootstrapping  How it compares to “for-profit” businesses Traditional Entrepreneurship Social Entrepreneurship Value defined economically – high net Social Value Proposition – social profit (return to investors) is primary benefit is primary Social benefit may be created as by- Economic wealth created as by- product of economic value product and allows for self- sustainability Serving Markets that can afford the Target underserved populations; new product or service cannot afford (financially or politically) to achieve the benefit on their own Social involvem
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