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BU111 MIDTERM NOTES.docx

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Department
Business
Course
BU111
Professor
Sofy Carayannopoulos
Semester
Fall

Description
BU111 MIDTERM NOTES- AMANDA ESMAILIAN Six Critical Success Factors 1. Achieving financial performance: not only do you earn a profit, but you are competitive in that sense investors will compare your financial performance to competitors 2. Meeting customer needs: providing the best customer service, good quality product giving your customers what they want; not only now, but determine wants/needs customers didn’t even know they had 3. Building quality products and services: setting standards for the quality you’re providing and meeting it consistently  give customer value for their dollar, meets customer expectations need to do this in order to achieve financial performance 4. Encouraging innovation and creativity: creating products for the future, anticipating what customers want and “creating” their wants 5. Gaining employee commitment: they love working for you and are proud, don’t want to leave, like seeing customers satisfied treat employees with respect and give them incentives 6. Creating a distinctive competitive advantage: having uniqueness so no one can imitate you How are these success factors connected to each other? -In order to achieve financial performance, you must build quality products and services that meet customer needs that are creative and customers will continue to want in the future. You also have to create a competitive advantage over other companies so customers keep coming back to you. -To have good quality products and services that keep customers coming back for more, you must have good employees to produce goods/run services , the employees also have to meet the needs of the customers. For this, you need employee commitment so the employees work to the best of their ability Diamond-E Framework 1. Management preferences: what managers prefer the way they manage the organization what they emphasize and don’t emphasize (strengths and weaknesses) in a case analysis, always consider what the decision maker (manager) wants 2. Organization: refers to culture determines the unspoken rules how we do things, what we are able to do, what we like/don’t like doing leadership 3. Resources: financial, human, and physical assets of the organization management has an influence on how they determine our culture and capabilities 4. Strategy: what opportunities the business is pursuing determines needed resources, organizational capabilities, and management preferences any variable can either drive or constrain strategy critical linking variable in model the first task is to deal with strategy-environment linkage, assess forces at work and their implications environment risk comes from inconsistency with strategy and environment capability risk is when the capabilities of the organization aren’t aligned with the strategy What are the connections among these variables? -each variable impacts and is impacted by the rest -management has an influence on resources (how they determine our culture and capabilities) -managers help determine the unspoken rules of the organization -strategy is the critical linking factor because it determines the needed resources, organizational capabilities, and management preferences What is the principle logic behind them? The principal logic of the diamond E is consistency or alignment consistency internally leads to performance alignment externally ensures strategy is right for the given environment… environment is always changing! always make sure strategy is in alignment with environment and consistent with internal variable What are some key examples? ? External Analysis What is external analysis? the process of scanning and evaluating the external environment  how managers determine opportunities (positive external tends or changes) and threats (negative external trends or changes) How do you conduct one?  General environment affects all businesses (PEST- political, economic, social/demographic, and technological factors) identifies general trends and changes each country faces same PEST in respective countries  Specific environment affects industry participants (Porter’s five forces)  analyzes five sources of competitive pressure and intensity predicts profitability of industry  look for data, statistics, trends, forecasts, expert opinions, etc What are the benefits and challenges of conducting one? Benefits:  Makes managers proactive  Provides information used in planning  Helps organization get needed resources  Helps organization cope with uncertainty  Improves consistency and performance Challenges:  Forecasts and trend analyses imperfect  Rapidly changing environment hard to keep up with  Time consuming PEST Factors 1. Political-legal environment: reflects the relationship between businesses and government, including government regulations of businesses  laws, regulations determines what a country can and can’t do (and what it must and must not do) companies want a)no regulations and b)low uncertainty canada is a free market economy  taxes create incentives/disincentives to do things corporate and personal if I pay more taxes, I have less money to spend on other things, meaning consumer spending decreases as taxes increase  trade agreements or conditions protect their own domestic products makes you productive and competitive, domestically and foreignly  political system more rules in Canada for business constrains us and creates more competition capitalist countries let businesses have as much freedom as possible (U.S) communist countries control everything (China)  political stability Canada and US are stable, makes life predictable which companies like able to predict opportunities and threats creates certainty  government can create incentives, constraints, or support/bail out when needed  affects uncertainty, risk, and constraints/costs faced by firm 2. Economic Factors:  economic growth- aggregate output, GDP, and standard of living aggregate output is the total amount of goods produced GDP is the total value of what is produced  Trade balance- importing vs. exporting trade deficit causes our country to lose capital  National debt- government borrowing when there’s more demand for dollars to be borrowed, interest rates go up and it makes us harder to borrow money and expand our companies must take mandatory government spending into consideration the more the government borrows, the more they are competing with businesses to borrow money  Economic stability- inflation prices go up  Interest rates- time value of money national debt causes interest rates to go up, so then it costs more for companies to borrow money and expand their companies (businesses can’t afford to borrow money) our spending also goes down low interest rates give now incentive for consumer investing (high interest rates are bad for investing)  Exchange rates if Canadian dollar is high, you can buy more in the states! this makes Canadian manufactures unhappy because then Americans won’t buy from them lower exchange rates make companies who sell their products in the foreign market look more competitive  influence costs, sales, and financial uncertainty 3. Social Factors:  customs, values, attitudes, demographic characteristics extremely different between nation and even regions within nations what companies are expected to do and give back  influence customer preferences they change overtime based on trends, seasons, etc  influences worker attitudes and behaviors how committed your workers are  influences standards of business conduct ethnics, social responsibility, stakeholder management what responsibility do I have to give back to the community  affects how we live, work, consume, and produce 4. Technological Factors:  internet affects buying, selling, communication  information technology affects information access, inter-firm cooperation, cycle times  cycle time- how long it takes you to complete an activity that you do regularly eg. how long it takes to order goods, develop new product, etc b/c technology has changed, cycle times have gotten shorter  computer technologies have changed our products and how we design and build  not limited to computers and information includes products which make life quicker and easier eg. Swiffer  affects what we produce/what it can do, affects how we produce and how we sell  demands constant learning and scanning Three most important issues facing Canadian business: 1. Value of the Canadian dollar 2. A skilled labour shortage An “social” factor skilled labour is an issue because we need people to do our labour such as fix our electricity and houses, but more people are choosing to go to university/college and not get into the trades 3. The natural/physical environment we want companies to be more sensitive to the environment, reduce pollution as an organization Questions to answer from PEST: 1. Do the economic conditions support my business? 2. What legal protection do I have or laws do I have to consider? 3. What demographic and social trends affect my business and how? 4. What technological forces affect me now and in the future? How do they assist or constrain? 5. What opportunities or threats does the environment possess? Porter’s Five Forces: What is the value of the model?  Each firm operates in a specific industry, each industry has different characteristics  Intensity of competition has a big influence on how the company operates and how profitable the industry can be  One of the most popular tools to analyze the competitive environment and decide on strategy  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 1. Suppliers:  fewer suppliers, higher switching costs, low attractiveness of substitute suppliers, high threat of forward integration= increased bargaining power for supplier  bargaining power increases costs of inputs  fewer suppliers means less competition among those suppliers meaning they have more power  more connected you are to a supplier, harder it is to switch suppliers (may cost you a lot) so you wouldn’t be very likely to switch  other suppliers may not look as good as your supplier SOLUTION: use strategic alliance or internal supply increasing bargaining power=getting more people to agree with you and bargain for the same thing 2. Potential Entrants:  can cause big changes  ease of entry=more intense competition SOLUTION: create or use barriers=capital intensity lots of money to get started in that industry try to keep new entrants out sometimes technology itself will prevent new entrants (if know-how is tough to obtain) sometimes laws will not allow new entrants to come in brand loyalty- eg apple computer consumers are very loyal, they won’t buy any electronic product that isn’t an apply product (APPLE ADDICTS!) access to distribution- may be able to get into the market, but you will have trouble selling your product (eg getting your grocery onto the shelf) 3. SUBSTITUTES:  many substitutes= increased competition  puts ceiling on price that can be charged  pressure increases as price of substitutes and switching costs decline SOLUTION: make buyers believe you are unique, lock them in 4. BUYERS:  few concentrated buyers, standardized products, low switching costs, discretionary purchases=increased bargaining power for buyer  reduces price that you can demand  some people think that each brand of a product is the same thing (eg milk, eggs)  if they don’t have to have it, some people won’t buy it, which allows buyers to negotiate prices SOLUTION: alliance with other firms, strong marketing 5. RIVALIRY AMONG EXISTING FIRMS:  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 (don’t distinguish between one thing or another) or are perishable (spoils quickly) What are some industry examples of the five forces? ? Questions to be answered with Five Forces Model: 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? New Venture – recently formed commercial organization that sells goods/services usually formed a year ago or less Entrepreneurship – identifying an opportunity and accessing resources to capitalize on it both small businesses and large corporations do this to remain in alignment small- tools to start up business large- look to make business better, tweaks and improvements, new things 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 than large businesses New ventures lead in new products and services Entrepreneurial Process:  influenced by PEST must keep looking for new opportunities in the external environment  Successful only when entrepreneur, opportunity, and resources match  Begins with entrepreneur identifying an opportunity then accessing resources a failure isn't an 100% loss in entrepreneurship, need to look back and improve What is the connection between entrepreneurship and the Diamond-E? the entrepreneurial process is successful only when entrepreneur, opportunity, and resources match Opportunity Recognition: 1. Idea generation (comes from two sources)  Often paradigm shifts  Originate in events relating to work or daily life, hobbies, chance happening 2. Screening must be able to make money from the idea  Weeding out bad ideas  Saves time, money  Ensures you have a viable idea with a competitive advantage need to be able to say how your product/service is different in a valuable way in order to make money Screening for Viability & Competitive Advantage: You know you have a good idea when… 1. Idea creates or adds value for customer  Solves a problem, meets a need  Customer willing to pay for it target audience needs to be able to afford the product/service 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? has to be patentable 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 that affect profitability?  Is the market growing, shrinking, concentrated, fragmented? growing- more and more customers shrinking- less and less customers concentrated- a few companies that control the many consumers in the market, hard to get into as a competitor fragmented- a lot of smaller businesses that own the small pieces of 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: 1. Use PEST analysis to assess environment – is it supportive of your idea? give the data and the “so what” (aka outcomes of the data) 2. Use Five Forces to determine ease of entry and profitability of industry 3. Use Five Forces, PEST, and market exploration to ensure uniqueness of idea ”Here’s what my competition does, but here’s what I do” 4. Use research of market (library databases) to evaluate how big your market is and whether it is growing, shrinking, or stagnant  you want to be a part of a growing market that will always have new customers coming that are attracted to the product/service, will make profit come in 5. Research expert opinions in the industry go to library, talk to companies that are already established 6. Identify and discuss how key trends in the environment and the industry affect your idea, i.e. represent an opportunity for you  establish an idea that will not only be good now, but in the future idea must have strategies for growth Evaluating your business opportunity: Criterion Highest Potential Lowest Potential Product Changes way people live, work, Incremental improvement only; learn, etc.; recurring revenue one-time revenue you don't want a product that would only be bought once an won't bring customers back for more (won't have reoccurring customers) product needs to have a refill option (eg printers with ink), needs to break so it can be replaced, needs to have version updates so people will go out and buy the "new and improved" version (eg cell phone, laptop) Customers Reachable Loyal to others; unreachable  make good/service available, market it to customers Value added high Low; minimal market impact  if value added is low, it will be tough to convince people to switch Market structure Imperfect; fragmented competition Highly concentrated, mature Market Large and growing Small and/or declining you're more likely to get the commitment from the customer if they are not committed to another industry Incumbents’ Production capacity At or near full capacity Undercapacity if a company is already near capacity, they don't have room to produce more supply so they will let a new venture into the market if they are under capacity, they won't want you to enter the market because they are still growing Barriers to entry Low, competition slow or High, competition stiff, can’t gain napping, have or can gain protection, hard to tap needed protection, have needed networks networks tough to enter market easy to enter the market Developing the Opportunity: •Business concept often changes from original –Incorporate information and research tweak your ideas as you move through your research –Incorporate experience and customer feedback •Once business concept finalized, move to business plan –Concept will be “tweaked” as business plan evolves Bootstrapping – doing more with less Make do with as few resources as possible Use other peoples’ resources where possible (you’re just starting off you have to work with what you have) Find/use free stuff •Financial resources – Debt vs. Equity financing -Debt = interest and control Sources – financial institutions, suppliers  eg visa lends you money to buy something, there is interest because it's a loan -Equity = no interest, less control Sources – savings, love money, private investors, venture capitalists eg dragon's den, no interest because you're not borrowing the money, instead they're buying part of the ownership 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: •Help overcome market inequities/failures –How? Entrepreneurs seek innovative solutions to the world’s toughest problems they take advantage of market gaps, often in areas of education, health, environment •Social value as the primary objective –Economic value is a by-product achieving social performance, make enough money to generate social value –Key difference! •Results in companies with social missions •Form of business can vary –Importance of attaining social value proposition through the legal business form (not-for-profit, for- profit, charity)  all profits go back into the business to help create social value •Accountability to community stakeholders –rather than only investors/shareholders  you’re most dedicated to the community you are trying to serve •Importance of bootstrapping and self-sustainability – charity vs. social business!  money in a charity is only used once, money in a social business is recycled (charity money has one life) *REFER TO VIDEO EXAMPLES ON SLIDES* Traditional Entrepreneurship Social Entrepreneurship Value defined economically – high net profit Social Value Proposition – social benefit is primary (return to investors) is primary  social value is the focus- how many people are  business achieves financial performance (makes you helping, how much help, what kind of help money, profitable) this is the focus Social benefit may be created as by-product of Economic wealth created as by-product and allows economic value for self-sustainability  one of the social objectives was to create employment Serving Markets that can afford the new product Target underserved populations; cannot afford or service (financially or politically) to achieve the benefit on their own eg people going to SOS need help with exams, people who we build houses for can't afford to build their own Social involvement in the form of “CSR” initiatives Social motives at the core of the business (not  CSR= corporate social responsibility limited to CSR) What is technology? •Advancements in equipment and its uses –Often substitutes for/magnifies human efforts –Includes human knowledge, work methods, equipment, business processing systems business processing systems- how we collect money, pay employees, etc •Includes information technology –the various devices for creating, storing, exchanging, and using information –Consumers use it daily, i.e ATM, shopping –Companies use it to gather and share information and execute activities Where does technology come from? •Comes from human ingenuity – formal and informal research & development (R&D)! –Basic R&D – knowledge without focus eg universities –Applied R&D – specific problem in mind  eg computer chip company researching on how to build a smarter, faster computer chip –Technology transfer – out of the lab and into the world Opportunities of Technology: •Products – innovation, uniqueness, value uniqueness- so much flexibility with technology, it's easier to come up with a unique product or service value- how cheap/expensive it is to buy it •Management and Organizational Processes –Instant access to information –Better service through coordination when there is a "file" with all your info on it, people can help serve you better when you have problems helps the company gain employee commitment because they feel productive and helpful towards customers –Leaner organization you don't need as many people there's better technology/machinery, meaning you don't need as many hands –Improved operations efficiency i.e. CAD, ERP you'll be more efficient building products and services, helping customers, etc –Greater independence of company & workplace you don't have to be sitting at your desk to do your job, technology allows you to take stuff on the go •Competitiveness –create barriers to entry; cooperation with other firms; reduced cycle times technology prevents others from imitating you •Communication and collaboration –within firm and with customers helps with innovation and creativity because you have more minds of which to share information, so there's a greater possibility of a good idea coming out of it •Customization we don't want to look like everyone else, we want variety because of tech, we can mass produce but allow our customers to customize their goods Threats of Technology: •Imitation ideas can easily be copied, especially if it can't be protected by patents hard to have distinct competitive advantage (critical success factor) –Information costly to develop but cheap to share eg music: back in the old days, people had to burn music onto a CD (effort) now it's all like youtube- mp3/torrent (barely any effort and free) •New technologies in unfamiliar areas –Disruptive technologies challenge the value of organizational capabilities and resources eg horse-drawn carriages, even if they're the best ones out there, they are useless •Unpredictable evolution –VHS vs. BetaMax –Blu-Ray vs. DVDs •Need for constant learning and scanning have to keep up with all the info an new technology •Information overload too much information out there, hard to narrow it down eg Google search for a picture •Greater independence of company & workplace you can't supervise your employees when they are working away from the office difficult to build a sense of community and connectedness for your employees if they're not all there at the same time, working away from the office, etc PREP FOR MIDTERM! HOW DOES TECHNOLOGY AFFECT CRITICAL SUCCESS FACTORS: Factor Opportunity Threat Achieving financial performance -product: technology allows us Imitation: if other firms can to come up with unique products easily imitate our products, we that separate us from will have a hard time making competition. Also allows us to profit because we aren’t gaining control the value of our product commitment from consumers to a greater extent. Meeting customer needs -communication and Greater independence of collaboration: allows for better company & workplace: communication with customers employees aren’t as committed, in terms of what they want thus don’t provide the best -management and organizational customer service process: better service through coordination, employees can find customer’s name under a file and be more efficient when helping customers, reducing wait times and increasing customer satisfaction -Customization: allows customers to customize mass- produced items to look the way they want them to Building quality products and -management and organiztonal Need for constant learning and services process: more efficient scanning: can be hard to give organization helps develop customers the best quality when products and services more there is always new technology efficiently, meaning more time being created to achieve better to think of new ideas for better quality quality innovations Encouraging innovation and -customization: technology Need for constant learning and creativity allows customers to customize scanning: an aspect that we their mass-produced products, thought was new and creative which encourages creativity, it is could be outdated before we easier to be creative and make know it products different from each other with technology Gaining employee commitment -management and organizational Independence of employees: process: better service with means that you can’t watch your coordination; when employees employees when they take work can pull up a file with a to go. Also, this takes away the customer’s name on it, it allows sense of community in a them to be more efficient and workplace, meaning employees serve more customers in a won’t feel as committe
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