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Wilfrid Laurier University
Laura Allan

Business Chapter 1 Critical Success Factors • Achieving financial performance -Net income, growth, making money • Meeting customer needs -Give customers what they want, good service and good products • Building quality products and services -Build what customers expect (relative to price), and build it consistently • Encouraging innovation and creativity -Needs change products must follow, pay attention to consumers, “create”  Gaining employee commitment -People will work harder to create quality if treated properly by business, “pride” • Creating a distinctive competitive advantage -Unique in away customer‟s value, customer friendly products *Without one of these factors success may not happen. *Understand individual factors and how they are connected. Planning Organizing Cri cal Success Factors Stakeholders Marke ng Economic EX Top Management L TR NA Poli cal AL Social Vision Opera ons ER Finance INT Mission Human Technological Resources Strategy Middle Management First-Line Management Controlling Direc ng ^Competitive forces model contributes as well Capability Risk- strategy is not aligned with the capabilities of a company Diamond-E Framework • Identifies key variables to be considered in strategic analysis Management Preferences Organiza o Strategy Environment n Resources Inspiring Lives of Leadership and Purpose Smart Company- progressively release new things instead of all at once, keeps people thinking seeing brand thinking things are new etc. Questions To Ask What are the preferences of managers and they are willing to change? Environmental Risk is from strategy and Environment being unaligned Do we have resources to pull off strategy, skills, knowledge, assets, money (Can we get them? Customer Needs- can outweigh consistency of performance, how easy to use – Advertising Do We Have: leadership, culture, structure, capabilities Do We Have: resources to pull off strategy skills knowledge assets money Internal Management Preferences- offer and implement strategies Organizations- what can we do? Resources- financial, human, capital resources Strategy External Environment Strategy Environment Linkage • Strategy: what opportunities the business is pursuing – Determines needed resources, organizational capabilities, and management preferences – Strategy is not aligned with the capabilities of a company • The critical linking variable in the model • Any variable can either drive or constrain strategy -any variable can effect strategy or be effected by strategy -resources effect majorly • Each variable related to the rest • Principal logic – CONSISTENCY or alignment • First task - deal with strategy-environment linkage -alignment with environmental decisions Assess forces at work and their implications Diamond E must work together to promote success change strategy to keep up with environment to be consistent must examine however internet must be able to keep up society changes, environment etc. External Analysis • Process of scanning and evaluating the external environment -Companies fail because they don‟t watch environment, then ask so what? What does mean for aspects of company • How managers determine opportunities (positive external trends or changes) and threats (negative external trends or changes) • Firms face multiple environments: – general environment; affects all businesses (New Vent analyses both) – Specific environment; affects industry participants (PEST) Unique to specific industry, competition, opportunities Culture Bias Preferences and Reactions How To Do An External Analysis • General environment (exist in a particular country, countries that trade with that country also face these factors) – PEST model – considers political, environmental, social/demographic, and technological factors – Identifies general trends and changes –explain why • Specific environment (ex. Competition) – Porter‟s Five Forces - analyzes five important sources of competitive pressure and intensity; predicts profitability of industry- more precise • Look for data, statistics, trends, forecasts, expert opinions, etc. Look at the past present and future PEST- Political- Legal Environment Elements: • Laws, regulations -Determine what it can and cannot do -What t must and must not do -Ex. Product labelling (Laws) Licenses, pollution control (Regulations • Taxes -Revenues that governments use to grow country and provide services -From a business perspective taxes create incentives -The higher the taxes the less money people have to spend on goods • Trade agreements or conditions -Open up trade opportunities; protect domestic industry with duties and conditions however agreements increase competition • Political system -The nature of the political system determines the support and freedom and company will have; they support businesses because they create jobs, which create more income tax opportunities • Political stability -when governments/ politicians change there is an uncertainty regarding laws and regulations therefore business strategy may need to be altered Government can create incentives, constraints, or support/bail out when needed Affects uncertainty, risk, and constraints/costs faced by firm. -Companies want freedom and low uncertainty, the greater uncertainty the tougher it is to create a strategy. -Better to invest in stocks because they are less taxed, dividends are taxed the least. New Veture Tip- Ask what political factors will effect my ideas PEST- Economic Factors Influences costs, potential sales, and financial uncertainty Elements: • Economic growth – aggregate output (total amount of goods that we produce) the more you produce the more you can sell, • GDP (Gross Domestic Product- measures total value of what is produced) the higher the GDP, the higher the standard of living (more opportunity to buy and sell), and standard of living (allows people to spend more) • Trade balance – importing vs. exporting -Trade deficit bringing in more goods then you can sell, less money you have to benefit your own country • National debt – government borrowing -Governments have to create a budget to pay for services and other activities -Even if tax revenues go down some services must still be supplied, if Gov. is borrowing there is less money for businesses to borrow in order to grow • Economic stability – inflation -Prices will continue to rise, unpreventable; inflation needs to be present but low -Inflation will hopefully be somewhat predictable so that businesses can plan a strategy • Interest rates – time value of money -Interest rates increase cost of borrowing, and consumers begin to save more - This also decreases the amount of people investing in houses and cars as loan are more money due to high interest rates (interest rates are determined by government action and inflation) • Exchange rates -Effect both domestic and international producer -The Canadian dollar costs a lot in some foreign countries and therefore the cost of your product is high PEST- Social Factors Elements: • Customs, values, attitudes (worker attitudes “pride”), and demographic characteristics (age, participation habits) • Influences customer preferences • Influences worker attitudes and behaviours • Influences standards of business conduct • Ethics, social responsibility, stakeholder management (who companies should watch out for, keep stockholders happy) Affects how we live, work, what and how we consume and produce PEST- Technological Factors Elements: • Internet affects buying, selling, communication- who, what, how • Information technologies affects information access (a lot of information however a lot to sort through), inter-firm cooperation, cycle times • Computer technologies have changed our products and how we design and build (products can be built and designed much quicker) • Not limited to computers and information Affects what we produce/what it can do, affects how we produce and how we sell Demands constant learning and scanning. The uncertainty is that we are not sure when or what the next opportunity, technology or threat is going to be. New Venture Tips- how do PEST factors affect me PEST Three most important issues facing Canadian business: 1. The value of the Canadian dollar (exchange rates- how competition with your product) 2. A skilled labour shortage (immigration sometimes doesn‟t provide this and we fight with the U.S. to maintain our skilled workers) 3. The natural/physical environment (Ethics/ social responsibility varies from country to country Questions PEST Answers (Remember for new venture) • Do the economic conditions support my business? • What legal protection do I have or laws do I have to consider? • What demographic and social trends affect my business and how? • What technological forces affect me now and in the future? How do they assist or constrain? • What opportunities or threats does the environment possess? Used for analyzing the competitive market. Substitutes - products that can replace or be used in place of others i.e. glasses instead of contacts -many substitutes= increased competition -puts ceiling on price that can be changed -pressure increases as price of substitutes and switching costs decline Suppliers - are the businesses you have to do business with to buy raw materials -the fewer suppliers you have to choose from the less competition they have and therefore they can increase prices. Fewer suppliers or high switching costs means = increased bargaining power -bargaining power increases costs of inputs, contracts and other things force companies to stay with suppliers therefore costs can rise -use strategic alliance or internal supply; negotiate with suppliers, generate a relationship -possible partnership with a competitor to force supplier to be reasonable Potential Entrants - are competition whether it be a company or technology that is competing with you or may in the future compete for your business -Can cause big changes -Ease of entry = more intense competition -Barrier= capital intensity (costs money to establish) , technology (patents can protect businesses), know how, regulatory (government can regulate how man can enter market), brand loyalty -less barriers easier for competition to make immediate impact on your industry and your sales Buyers - investors and consumers in your company - Few or concentrated buyers, standardized products, low switching costs, discretionary purchases = increased bargaining power - When buyers have power, it reduces price that you can demand - ex/ Wal-Mart has a large buying power because of the volume that Wal-Mart purchases. Therefore companies will except a purposed cheaper price to move more units Consider all these forces because they affect the profitability of a business. The more competition there is the less cost for goods. The more pressure on profitability in a market the less profitability there will be. Collusion- secret negotiation/cooperation between competitors to establish an agreement. Collusion is illegal. Governments only get involved and discuss pricing with companies only to keep the pricing down. Monopoly- Rivalry among existing firms (most powerful force) -Results in price competition and increased costs -Most powerful of five forces -Causes: many competitors of equal size/capability, growth rate of industry, consumers switching costs, products are commodities (gas, consumers have to believe there is a difference in quality, if not then the cheapest is bought) or are perishable When supply exceeds demand pricing will go down, and vice versa. Caveat: Power and relevance of a force vary by industry. Value Of The Five Forces Model • Predicts industry profitability • Helps determine whether a firm should enter a particular industry • Helps determine whether and/or how it can carve out an attractive position in that industry • Can create a positive competition where companies compete using different features, services etc. which provides the right product for all different consumers as opposed to a consumer being forced to buy a certain product • This allows industries to understand why or why not their industry makes a lot of profit as it causes them to focus on where and how many expenses a company must have and it its reasonable in comparison to the industries revenue opportunities (good industry- soft drinks poor- airlines • Basically allows you to create a strategy that is in alignment with the industry and can keep up with the environment of that industry http:/ Questions For New Venture (in regards to the forces) 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? Where To Find Information? • Standard and Poors NetAdvantage – – Provides Industry Trends, Industry Ratios, and lots of key industry data • GMID – market share data by company and brand; industry growth data • DataMonitor – five forces analysis and SWOT • FPInfomart – Canadian data Benefits Of External Analysis  Makes managers proactive  Provides information used in planning  Helps organizations get needed resources  Helps organizations cope with uncertainty  Improves consistency and performance Challenges of External Analysis  Rapidly changing environment hard to keep up with  Time consuming  Forecasts and trend analysis imperfect Chapter 2 New Venture Project and Competition • BU111 – find an idea and prove it is worthwhile using external analysis BU121 – develop business plan to pursue it  Preliminary report – 4 marks due Oct. 14 – Describe idea, preliminary evidence (top PEST and Five forces factors, market size estimate), timeline for completion • Final report – 8 marks due Nov. 18 – Describe idea and use external analysis to demonstrate why your idea is worthwhile • creates value that customer is willing to pay for • Is unique in a way customers value • Represents an opportunity given the environment • Final presentation – 8 marks – in labs #10 and #11 • Can be a social venture – Must demonstrate social value, desirability, and ability to be self- sustaining Two parts – idea proposal + completion plan • Idea proposal – describe idea, value, uniqueness (competition), customer, size of market, other evidence showing it is worthwhile (double space) • Completion plan – tasks and completion dates (can be single-spaced chart) • Maximum 5 pages excluding references, appendices, cover page etc. • Check against rubric to be sure you get a good mark • Submit to turnitin as well as hard copy • Submit peer evaluations Entrepreneurship • What is it and how is it related to small business and new venture creation? • Role of small and new businesses in the economy • Process and key elements • Opportunity recognition • Screening for viability and competitive advantage • Accessing resources • Social 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 -97.8% of all businesses in Canada are small -Contribute > 26% annually to GDP -Provide more jobs then large businesses -New Ventures lead in new products and services (Porters Forces- new entrants) Entrepreneurial Process • Influenced by PEST • Successful only when entrepreneur, opportunity, and resources match • Begins with entrepreneur identifying an opportunity then accessing resources -need all three for success SWOT- strengths weakness opportunity and threats Idea Generation  Often paradigm shifts  Originate in events relating to work or daily life, hobbies, chance happening Screening  Weeding out bad ideas  Saves time, money  Ensures you have a viable idea with a competitive advantage Screening For Viability & Competitive Advantage You know you have a good opportunity when: 1. Idea creates or adds value for a 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 differences valuable to customers? -Is it something that existing firms can easily do or may want to imitate? -Can the idea be protected legally? 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 competitors and what are the forces affect profitability  Is the market growing shrinking, concentrated (large companies), fragmented (small companies) ?  Are their large competitors, how much power do they have over the market Safety point: Does the idea have low exit costs?  Longer time to profitability or greater up front investment needed= riskier venture How To Screen • Use PEST analysis to assess environment – is it supportive of your idea? • Use Five Forces to determine ease of entry and profitability of industry • Use Five Forces, PEST, and market exploration to ensure uniqueness of idea • Use research of market (library databases) to evaluate how big your market is and whether it is growing, shrinking, or stagnant • Research expert opinions in the industry • Identify and discuss how key trends in the environment and the industry affect your idea, i.e. represent an opportunity for you  Recurring revenue stream is important, the life span of a product must be lengthy but beneficial to a business so they will buy the newer product or generation once older product has expired  A company at full capacity may allow room for another company as the current market is booming and needing more products, however under capacity companies are looking to reach max capacity and will expand and have customers already, no room for new venture Developing The Opportunity • Business concept often changes from original – Incorporate information and research – Incorporate experience and customer feedback • Once business concept finalized, move to business plan – Concept will be “tweaked” as business plan evolves Accessing Resources  Bootstrapping- doing more with less -make do with as few resources as possible -use other peoples‟ resources where possible -find/ use free stuff  Financial Resources- Debts vs. Equity Financing -Debt- interest and control *sources- financial institutions, suppliers  Equity= no interest, less control *sources- savings, love money, private investors, venture capitalists Market Potential Versus Sales Forecasts  Market potential – the total amount that consumers might buy, under the right circumstances  Sales Forecast – the amount you think you can sell using your plan What Scenarios Can We Use For Sensitivity Analysis  Break even  Largest competitor‟s sales  Smallest competitor‟s sales  Average sales per competitor  Analogy *sales of a company that launched a similar product, e.g., skates, sticks; Blu Ray, DVD  Last year‟s sales +/- (for existing or modified products)  Growth rate over last x years continues (for existing or modified products) The Rise Of The Social Entrepreneur  Entrepreneurs seeking innovative solutions to some of the world‟s toughest problems  On a spectrum between non-profit & for-profit organizations  Typically accountable to community stakeholders rather than private investors  Importance of social capital (value of our society) • Prof. Muhammad Yunus: Founder of the Gramee
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