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BU 111 Midterm review guide Fall 2013.doc

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Wilfrid Laurier University
Leanne Hagarty

BUSINESS 111 Midterm - topics to be covered 1.The relationship between the firm and its external environment The external environment is the process of scanning evaluating the external environment to determine opportunities and threat. It consists everything outside an organization that might affect it. The external environment determines an organization’s success of failure. - Critical success factors: what they are, why they are important, how they connect to each other Why important? It is vital to the company’s success. Critical success how why factor Achieving financial Generating Required for business to be performance Income/revenue sustainable Meeting customer Reliability variety timeliness Customers provide revenue/sales needs safety , quality Building quality Quality assurance Encourage customers to buy products & services products/ services Build reputation Encouraging Training programs Business should be constantly innovation & Incentives changing and adapting to the event creativity Open forum Gaining employee Incentive plans Employees are the driving force commitment Training behind the business Participation in management decision-making Creating a distinctive Adding value To encourage customers and competitive outcompete competitors advantage - Diamond-E model: key variables, connections among variables, principal logic, examples Key variables : organizations,strategy, management performance, resources, environment. Connections among variables: any variable can either drive of constrain strategy; each variable is related to the rest. Principal logic : consistency or alignment Internal consistency leads to performance External consistency ensures strategy is right for the given environment - stop potential entrants coming in examples: IKEA , P&G First task - deal with strategy-environment linkage -Assess forces at work and their implications 2.External analysis - what it is, how to conduct one, general vs. specific environments, benefits and challenges of conducting one - External analysis is the process of scanning and evaluating the external environment. 1.For General environment(affects all business,the economy as a whole), use PEST model to considers political, economic, social/demographic,and technological factors and identifies general trends and changes 2.For Specific environment(affect industry participants, the industry you are in), use Porter’s Five Forces - analyzes five important sources of competitive pressure and intensity and predicts profitability of industry While conducting external analysis , should look for data, statistics, trends, forecasts, expert opinions, etc. Benefits of external analysis makes managers proactive; provides information used in planning; helps organizations get needed resources and cope with uncertainty; improve consistency and performance; need to analyze ahead and anticipate problem to be able to deal with. Challenges of external analysis: rapidly changing environment which is hard to keep up with; time consuming; forecasts and trends analysis are imperfect; no incentives 3.PEST factors: elements, impact on business, questions to answer from PEST analysis elements:the political factors, economic factors,social factors, technologic factors Impact on business: Definition/Elements Effects on business Political 1. Laws & regulations Effects how business can operate (i.e 2. Taxes wage laws , product labeling) 3. Trade agreements or Taxes create incentives conditions Political environment - capitalist vs. 4. Political systems Socialist 5. Political stability Affect uncertainty, risk and constraints/costs faced by firm Economic 1. Economic growth=aggregate Influence costs ,potential sales, and output, GDP and standard of financial uncertainty living. Aggregate output = total quantity of 2. Trade balance goods produced 3. National debt More government borrowing = less 4. Economic stability funds for businesses = higher interest 5. Interest rates rates & taxes 6. Exchange rates Exchange rates affect trade balance Social 1. Customer performance Affects how we live ,work, consume and 2. Values produce 3. Worker attitude of business Customs, values, attitudes and conduct demographic characteristics 4. demographic characteristics Technology Affects what we produce/ what it Internet affects buying , selling, can do ,affects how we produce communication, information and how we sell access(good and bad) Information technology :affects information access, inter-firm cooperation, cycle times Computer technology change our products and how we design and build Porter’s five forces model: = 5 forces is a holistic way of looking at any industry explanation of each force’s impact on industry profitability, methods of reducing the impact of each force, strategic questions it answers, industry examples - Forces Impact on industry profitability Methods of reducing the impact Industry examples Potential New entrants can introduce Create or use barriers: Brand loyalty: entrants new technologies or business - capital intensity knowing Toyota, models= cause big changes - technology ford - not ‘sofy’ Ease of entry = more intense - know-how competition - regulatory approval New revolutionary ideas cause - brand loyalty other companies fail - access to distribution Buyers Few or concentrated buyers, standardized products, low switching costs, discretionary Create alliances with other Walmart purchases = increased firms, build strong marketing bargaining = more incentive to sell to them Reduces price that you can demand Rivalry Results in price competition and increased costs Most powerful of five forces -products are commodities -many competitors or equal size/capability -growth rate of industry -consumers switching costs Substitutes Many substitutes = increased Make buyers believe you are glasses vs. contact competition unique, lock them in lenses vs. laser eye Puts ceiling on price that can be surgery charged Pressure increases as price of substitutes and switching costs decline suppliers Fewer supplier of an important Strategic alliance or internal Computer chip input means you have no supply to reduce dependence producer to the choice but to accept the price on outside suppliers  increase computer demanded BP industry ; Bargaining power increases the Provide critical inputs buying shares, costs of output controlling interests or creating their own suppliers Value of five force model : (the more forces on your profits, the lower your profits) 1.helps determine whether a firm should enter a particular industry - predicts profitability 2.Helps determine whether and/or how it can carve out an attractive position in that industry 3.The greater the competition, the closer you get to perfect competition witch leads to lower prices 4.By determining the challenges in an industry, you can develop a strategy to overcome them 5.Entrepreneurship what it is, what the key elements are, its significance Entrepreneurship is the process of identifying an opportunity in the marketplace and accessing the resources needed to capitalize on it New venture : recently formed commercial organization that sells good/services; formed less than 5 years Small business - owner - managed, not dominant in market , less than 100 employees - 97.8% of all businesses in Canada are small - contribute more than 26% annually to GDP - provide more jobs than large businesses (*add together eg university) - new ventures lead in new products and services Key elements are entrepreneur, opportunity and resources -As the 3 key elements interact, they may be mismatched or well matched -the entrepreneurial process is successful only when the 3 key elements match -begins with entrepreneur identifying an opportunity then accessing resources(capital,human resources) entrepreneurial process elements, influences, an d connection with Diamond-E components of opportunity recognition 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 how to screen and evaluate opportunities for viability and competitive advantage screen and evaluate opportunities: Opportunity Recognition • generating ideas for new/improved products, processes, or services - involves abandoning traditional assumptions about how things work and how they should be, and seeing what others don’t see  paradigm shifts - most new ventures don’t emerge from a deliberate search for viable business ideas - Work experience is the most common source of ideas - Other sources of new venture ideas include personal interest/hobby or a chance happening • screening those ideas - the faster you weed out bad venture ideas, the more time/effort you devote to others - ensures that you have a viable idea with a competitive advantage use PEST and 5 forces - Identify and discuss how key trends in the environment and the industry affect your idea  use PEST to assess environment and if it supports idea - Use 5 forces to determine the ease of entry and profitability of industry - Use research to evaluate how big the market is; if it’s growing, shrinking, stagnant… - Research expert opinions in the industry - Is it something that existing firms can easily do or may want to imitate?  protect legally how to screen for nv project? 1. Use PEST analysis to assess environment - is it supportive of your idea? 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 4. Use research of market(library databases) to evaluate how big your market is and whether it is growing , shrinking , or stagnant 5. Research expert opinions in the industry 6. Identify and discuss how key trends in the environment and the industry affect you idea, i.e. Repress an opportunity for you evaluate opportunities for viability and competitive advantage - Creates/adds value for customer:  a product that creates or adds value for the customer is one that solves a significant problem, or meets a significant need on new/different ways - Idea provides sustainable competitive advantage:  unique& better than that of competitors. Sustaining a competitive advantage means maintaining it in the face of competitors actions or changes in industry  easy if mark
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