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Sofy Carayannopoulos

Relationship b/w the Firm and its External Environment Critical Success Factors Achieving financial performance  Imp: survival and growth  Connection: Need financial stability to ensure other factors Meeting customer needs  Imp: satisfy what market wants/needs  Connection: ensures consistency in market -> ach. Financial performance Building quality products and services  Imp: meets customer needs /expectations  Connection: Quality ->meets needs -> ensures fin. performance Encouraging innovation and creativity  Imp: trends and anticipated, companies need to be current.  Connection: New things -> quality -> … -> financial performance Gaining employee commitment  Imp: more committed = harder working =enthusiasm = better company  Connection: harder working employee -> better results -> …-> fin. Performance Creating a distinctive competitive advantage  Imp: uniqueness= bigger unshared market  Connection: D.C.A -> employee pride /commitment -> …-only standard ->.. set prices-> …performance Diamond-E: Identifies key variables to be considered in strategic analysis  Strategy: what opportunities the business is pursuing o determines needed resources, organizational capabilities, and management preferences o Any variable can either drive or constrain strategy  The critical linking variable in the model  First task - deal with strategy-environment linkage o Assess forces at work and their implications  Principal logic – consistency or alignment o Consistency internally leads to performance  Each variable impacts and is impacted by the rest o Alignment externally ensures strategy right for the given environment o Warning: environment always changing  is strategy in alignment with environment?  Is strategy consistent with internal variables External Analysis: process of scanning and evaluation the external environment. How managers determine Opportunities and Threats. General Environment Define Affects all businesses Affects industry participants Analysis – PEST model – considers political, – Porter‟s Five Forces - analyzes five environmental, social/demographic, and important sources of competitive technological factors pressure and intensity; predicts – Identifies general trends and changes profitability of industry Conducting an External Analysis… Benefits Challenges 1. Makes managers proactive 1. Forecasts and trend analysis imperfect 2. Provide information used in planning 2. Time consuming 3. Helps organization get needed resources 3. Rapidly changing environment hard to keep up with 4. Helps organization cope with uncertainty 5. Improves consistency and performance PEST Political Factors Economic Factors: influences cost, potential sales, & fin. uncertainty  Laws, regulations  Economic growth – aggregate output, GDP, and standard of living  Determines what companies must and must not do, protection consumers o More growth = more opp. To sell to a richer pop. (ex. Bank) o Aggregate output- total goods/services produced at a given time  Govt. regulates certain industries ensuring there is competition but o GDP: total value of aggregate output G/S prevents too much o Standard of living: total quality and quantity of G/S that one can purchase  Taxes w. their currency  subsidizes things such as education and health care  Way were taxed creates incentives/disincentives to do certain things Trade balance – importing vs. exporting o If imports > exports = trade deficit  Trade agreements or conditions o if exports >imports = trade surplus  Free Trade? Good or Bad? Opportunity or threat? -> depends on situation, o wants balance deficit = surplus Canada thought FTA would be bad cause American companies would take over but Canadians worked hard to over power  National debt – government borrowing (from us) o opportunities -> new markets o Affects economic growth b/c govt. competes w. every other potential borrower (us) for available supply of loanable money. o Threat- > more competition o More govt. borrows = less available for private borrowing and  Political system investment that increases productivity; businesses must compete o Capitalist vs communism o Budget deficits: more is spent per year then gained -> national debt  Political stability  Economic stability – inflation o Inflation? o Businesses hate uncertaintiy -> need welldefine trade relationship o Need a place and strategy to predict future o Deflation? o Unemployment? –Why? -Affects uncertainty, risk , and constricts /costs faced by firm  Interest rates – time value of money -New major/Provincial leaders can affect many organizations, esp small firms that doo Rise -> people save b/c they get more interest -> less borrowing business in a single location and are susceptible to zoning restrictions, property, ond Govt. raises interest rates to drop demand (supply stays) and prices drop school taxes etc. in order to attract more consumers -Govt. can create incentives, support/bail out when needed.  Exchange rates -If businesses closes -> ppl lose jobs, suppliers and communities suffer -Ergo govt. may prop up business o High E.R -> each unit of currency can buy more in foreign currencies o Downward pressure on inflation, more imports, more efficiency o Damage to export/domestic industries due to competition with imports and hence unemployment o Low E.R o Imports and raw materials are more expensive, resulting in inflation o More employment in export/domestic industries due to cheaper exports Social Factors: affects how we live, work , consume /produce, Technological Factors customer preferences, and business standards  Internet affects buying, selling, communication  customs, values, attitudes, and demographic characteristics  Information technologies affects information access, inter-firm o These things change from market to market and from time to time o Influences worker attitude cooperation, cycle times  Computer technologies have changed our products and how we  Influences customer preferences design and build o Some countries, consumers are willing to pay more for a certain thong Research and Development provides new ideas for products, services, and Designer clothes) while in other countries the market will react diffeprocesses  Influences worker attitudes and behaviours  Not limited to computers and information o In some countries workers are treated like family and vise-versa o New technologies revolutionize business, ranging from ways customers & o In other countries employee-company relationship is not as strong companies interact to where/when/how employees perform-> important  Influences standards of business conduct contributors to economic development Ethics, social responsibility, stakeholder management -affects what we produce /what it can do, how we produce, how we sell, and demands o Varies from country to country constant learning and scanning o Share expectations->honesty -Companies must be aware of technological breakthroughs that may make their product o Customs, values, attitudes and demographic characteristics of obsolete/threaten survival where company operates -Technology transfer: process of getting a new technology out of the lab into the marketplace where it can generate profit the company -Cycle Time: time that it takes a firm to accomplish some recurring activity or function  (PEST) Most important issues facing Canadian Business o The value of the Canadian dollar o A skilled labour shortage o The natural/physical environment  Questions to Answer from PEST Analysis o Do the economic conditions support my business? o What legal protection do I have or laws do I have to consider? o What demographic and social trends affect my business and how? o What technological forces affect me now and in the future? How do they assist or constrain? Porter’s 5 Forces Rivalry Among Firms  Results in price competition and increased costs  Causes o Many competitors of equal size/capability o Growth rate of industry o Consumers‟ switching costs o Products are commodities or are perishable Suppliers  Fewer suppliers, high switching costs, low attractiveness of substitute suppliers, high threat of forward integration means = increased bargaining power for supplier  Bargaining power increases costs of inputs  Sol: Use strategic alliance or internal supply Buyers  Few or concentrated buyers, standardized products, low switching costs, discretionary purchases = increased bargaining power for buyer  Reduces price that you can demand  Sol: Alliance with other firms; strong marketing New Entrants  Can cause big changes  Ease of entry = more intense competition  Sol: create or use barriers = capital intensity, technology, know-how, regulatory approval, brand loyalty, access to distribution Substitutes  Many substitutes = increased competition  Puts ceiling on price that can be charged  Pressure increas
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