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BU111 Compiled Midterm Notes

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Wilfrid Laurier University
Sofy Carayannopoulos

BU111 Compiled Midterm Notes Study of Business • Establish Models & Rules for doing business • Speed of Obsolescence • Disintermediation • Amount of data available • Reduced need for physical assets • Vanishing distance and compressed time • Demographics driving change (Baby boomers) • Globalization/ interconnectedness and its impact o Buy directly from China o Canada can go into their market Critical Success Factors • Foundation of business, essence and mission of your business and is vital in its success • People, Planet, Product- Triple Bottom Line o People/ Environment affects along with making a profit Critical Success How toAchieve Why it is Important Factor Achieving • Generating income/ • Required for business to Financial revenue be sustainable Performance • Growing compared to competitors Meeting Customer • Customers desire • Understand, meet and Needs reliability, variety, anticipating needs timeliness Building Quality • Quality assurance • Encourages customers to Products and • Consistently give customer buy goods Services a good value for their • Builds reputation dollar • Consider universal standards Encouraging • Training programs • Creating projects for the Innovation and • Incentive future Creativity • Open to ideas • Adapting to • Anticipating customer’s environment • Speed of Obsolescence needs Gaining Employee • Incentive plans • Attracting the best Commitment • Training employees • Proud of their job and • Participation in mgmt. decisions therefore they will stay and will be motivated to improve • Higher employee efficiency Creating a • Adding value- providing • Patents, key supply Distinctive something new, that is not component Competitive easily attainable • Businesses want a Advantage Monopoly (LCBO) SWOT- Strengths, Weakness, Opportunity and Threats CaseAnalysis- use individuals thoughts/ preferences when making decisions Diamond- E Framework • Identifies key variables to be considered in strategic analysis Management Preferences • Conservative or aggressive • Biases, structure and riskiness within the business (Internal) Organization • Culture-unspoken truth • Capability • Ethics of the business • Linkage within the business (employees) Resources • Financial • Human (knowledge and skills that they posses) • Capital • Based on the amount of resources affect the culture/ capabilities Strategy and Environment (FIRST TASK) • Look at the external environment; you then compile a strategy within the organization to best suit the environment • Acompanies outlook to what they see can be successful • What opportunities the business is pursuing o Determines needed resources, organizational capabilities and management preferences o Any variable can either drive or constrain strategy • Critical linking variable in the model between strategy-environment • Based on environment and its opportunities and threats • Looks at the environment today and tomorrow as it is constantly changing o Assesses forces at work and their implications Principal Logic- consistency and alignment • Consistency internally leads to performance o Each variable impacts and is impacted by the rest • Alignment externally ensures strategy right for the given environment (alignment and consistency) • Each variable impacts and is impacted by the rest a. Ability to execute b. Capabilities risk • Examples: o P&G Strategy (inconsistency)  Grew too fast and didn’t understand the consistency, alignment in the growth o Ikea Strategy (consistent with alignment) ExternalAnalysis • The process of scanning and evaluating the external environment is how managers determine opportunities and threats o General environment; affects all businesses (Interest rate) • Specific environment; affects industry participants (Profitability) Benefits Challenges • Makes Managers Proactive • Rapidly changing environment- o Future O&T hard to keep up with • Provides info used in planning • Time Consuming/ expensive • Helps get needed resources for future • Future predictions are often • Cope with Uncertainty imperfect • Improves consistency and performance Issues facing Canadian Businesses: 1) The value of the Canadian dollar • High dollar= happy consumers but unhappy exporters 2) Skilled Labour Shortage • Skilled labour prices are increasing 3) The natural/ physical environment • Forcing companies to reduce their environmental impact PEST Model (General Environment) • Identifies general trends and changes PEST Factor Definition/ Element Effect on Business Political- • Laws, regulations • Government can create Legal o Packaging/ labelling incentive, constraints, Environment • Taxes Subsidies (Opposite of o Corporate/ Personal taxes) or bail outs when • Trade agreements or needed • Affects uncertainty conditions o Opportunities and • Political system o Capital (US Market) Threats • Political Stability o Predictable future, easier to expect what happens in the future Economic • Economic Growth • Influence costs, potential Factors o GDP + sales and financial aggregate output (the uncertainty quantity of goods and • Government Borrowing: services we produce) = less money to be borrowed Standard of Living and more expensive • Trade Balance interest rates o Importing (Trade • Increase in prices results in Deficit) vs. Exporting purchasing power to go (Trade Surplus) down • National Debt • As inflation rises then prices go up and companies • Economic Stability o Inflation, are uncertain so the unemployment unemployment rate rises • Interest Rates o Time value of money o Increase= buying and borrowing go down • Exchange Rates o High dollar then international shopping and tourism increases Social Factors • Customs, values, attitudes • Affects how we live, work, and demographic consumer and produce characteristics • Influences customer • Culture preferences o All about society • Influences worker attitudes and these differ from and behaviours one region to another (organizational behaviour) o Values of a • Influences standards of society influence what business conduct they prefer o Ethics, social o Cannot change responsibility, consumer preferences stakeholder o Bribes, kick management backs are the way some do business Technological • Information technologies • Affects what we produce/ Factors affects information access, what is can do, affects how inter-firm cooperation, we produce and how we cycle times (how fast we sell can deliver, design and train• Demands constant learning employees) and scanning (changing • Not limited to computer and external environment) information • Internet affects buying, selling, communication (efficient to connect with consumers) • Computer technologies have changed our products and how we design and build Porter’s Five Forces (Specific Environment) (SERBS) • Analyzes five important sources of competitive pressure and intensity; predicts profitability of industry Effect on Profitability: Force Importance Suppliers • Fewer suppliers, high switching costs, low attractiveness of substitutes suppliers, high threat of forward integration means = increased bargaining power for supplier • Attractiveness of substitute Supplies o Another input supplies used to differ (original MAC was plastic and now aluminum) Sol: Use strategic alliance or internal supply Potential • Potential to create big changes Entrants • Ease of Entry = increased competition • Capital Intensive, Technology, Know-how, regulatory approval, loyalty Sol: create or use barriers Substitutes • Many substitutes = increased competition (glasses vs. contacts) • Puts ceiling on price that can be charged • Pressure increases as price of substitutes and switching costs decline • Lock in customers; keep customers from switching Sol: Make buyers believe you are unique; lock them in Buyers • Few or concentrated buyers, standardized products, low switching costs = increased bargaining power for buyer Standardized Products (need, gas same everywhere) Discretionary Products (want, luxury) Sol:Alliance with other firms; strong marketing Rivalry among • Price competition and increased costs existing Firms • Most powerful of five forces • Causes: (Wal-Mart and Target) o Many competitors of equal size/ capability o Growth rate of industry o Consumers’switching costs o Products are commodities or are perishable • Low rivalry = industry is disciplined Industry Zero Sum: No Profit (Airline industry) Positive Sum: Profitable (soft drinks) Sexy: (Zero Sum) Attractive Value of Five Forces Model • Predicts industry profitability • Helps determine whether a firm should enter a particular industry • Helps determine whether and/ or how a firms can carve out an attractive position in that industry • Opportunities and Threats o Think through threats and figure out what needs to be done to be successful o Develop Strategies to develop the 6 critical success factors o Connections between the forces and profitability Forward Integration: take out the middleman Backward Integration: Internal Supply Entrepreneurship New Venture • Recently formed commercial organization that sells goods/ services Entrepreneurship • Identifying an opportunity and accessing resources to capitalize on it • Large and small corporations act on this to stay or become competitive • For large companies it is doing something different then what they did before Small business 98% • Owner- managed, not dominant in market, less then 100 employees • Provide more jobs, new ideas and contribute to GDP Entrepreneurial Process • Influenced by PEST • Successful only when entrepreneur, opportunity and resources are in alignment • Begins with entrepreneur identifying an opportunity then accessing resources 1. Connect to Diamond-E • From the External environment that ideas are created • PEST fits into the Diamond-E with the Environment • Entrepreneurship is connecting and creating opportunities in the environment like strategy 2. Entrepreneur must give, time and money as well with strategy and personal preferences will guide the strategy • Provide leadership, embody the culture, there skills and capabilities have a lot to do with the skills that the company has Opportunity Recognition 1. Idea generation • Often paradigm shifts (questioning the often normal elements) • Originate in events relating to work or daily life, hobbies, chance happening 2. Screening • Weeding out bad ideas • Saves time, money • Ensures you have a viable idea with a competitive advantage Screening Process 1. Idea creates or adds value for 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 o How is it different and better from existing products and substitutes? o Are differences valuable to customers? o 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 that affect profitability? • Is the market growing, shrinking, concentrated (Few that dominate the minds of consumers), fragmented (Lots of small businesses that don’t control a significant control of 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 for NVP • Use PEST analysis to asses
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