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BU111 Midterm Notes.docx

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Leanne Hagarty

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BU111: Carayannopoulos External Analysis Critical Success Factors Every organization has to achieve these factors for success Looking at: What, Why, Relation 1. Achieving Financial Performance to be profitable, both financially and competitively... this is appealing for customers from an investment perspective. 2. Meeting Customers needs customer satisfaction. Know what your customer wants/needs and be understanding. A loss of one customer is a loss of their friends as well. 3. Building Quality Products and Services this factor meets customer expectations and beats competitors. If the quality of your product or service is good this makes the customer happy which ultimately leads to achieving financial performance. 4. Encouraging Innovation and Creativity Sets your apart from competition and creates new needs for customers. With consistent innovations you are in the news which is a free form of advertising and rise in stock value. 5. Gaining Employee Commitment With dedicated employees comes harder work and better results and productivity. Since employees are the ones that deal with customers one on one this can make or break your customer relations. 6. Creating a distinctive Competitive Advantage unique, different, valuable...a unique aspect which sets your identity and sets you apart from the competition. Diamond-E Framework identifies key variables to be considered in strategic analysis Management Management can be bias depending on the leader, for example one may be for taking risk while another may be more conservative. This has an impact on strategic uses as it can vary from using one strategy from another. Organization Consists of culture, leadership, structure, and capabilities. Determines what kind of strategy you can pursue. Do we have the necessary capabilities, if not can we? Resources Consists of financial, capital, and human resources meaning we need money, assets, and labour. Do we have the necessary resources to execute the strategy? *capabilities can be influenced by resources Strategy Does it match with the Management Preferences? Willing to Change? Strategy Environment Linkage The critical linking variable in the model, the bridge with internal and external. Any variable can either drive or constrain strategy. Each variable related to the rest. Strategy: what opportunities the business is pursuing. Determines needed resources, organizational capabilities, and management preferences. Principal Logic: Consistency or Alignment External Analysis Look towards the future always, potential opportunities and threats. Analysing the outside world of trends and economic state to determine opportunities or threats. Firms face multiple environments: 1. General Environment: affects all businesses PEST model considers political, environmental, social/demographic, and technological factors. Identifies general trends and changes. 2. Specific Environment: affects industry participants Porters Five Forces- analyzes five important sources of competitive pressure and intensity predicts profitability of industry Both look for data, statistics, trends, forecasts, expert opinions, etc PEST Political-Legal Environment Elements: 1. Laws, regulation - Determine what a company can/cannot do. o E.g. product labelling laws: Canadas labels have to be both in French and English - Regulations determined through restrictions. o E.g. bell could be the only one that could provide home phone service, no competition 2. Taxes - Governments need to collect taxes because thats what enables them to fund programs, pay pensions, build roads, subsidise education, etc... However taxes can be used by the government to create incentives. o E.g. tax something higher making it more costly discourages consumers to buy it - Investors perspective: you can lend it to a business or buy stocks. Governments can influence investors to invest in stocks rather than bonds through income taxes Capital Gain: selling something you bought previously for a higher price (stocks) 3. Trade Agreements or Conditions - Why is Toyota located in Cambridge? Why not Japan? Tariffs. A tax or duty to be paid on a particular class of imports or exports. - With trade agreements, governments use this to protect their domestic production. 4. Political System - Capitalism vs. Communism - Capitalism: no boundaries - Communism: Restrictions 5. Political Stability - Determines how much predictability there is - Businesses want consistency and predictable environments and stability to execute specific strategies o E.g. Middle East. Very hard to do business there because the economy is so unstable. Hard to survive. Governments can create incentives, constraints, or support/bail out when needed. Affects uncertainty, risk, and constraints/costs faced by firms. PEST- Economic Factors Influences costs, potential sales, and financial uncertainty Elements 1. Economic growth aggregate output, GDP, and standard of living - How fast is it growing? And how much? - Growing economy: more money in consumers pockets therefore more money being spent - Aggregate output: total quantity of goods produced in any country - GDP: gross domestic product. Measures the total value of product and services produced. - When aggregate output and GDP is increasing, your standard of living is increasing. 2. Trade balance importing vs. Exporting - Always want to be exporting more than importing so that more money is flowing in than flowing out. - Foreign money to help growth, your aggregate output and GDP goes up therefore your standard of living increases. 3. National debt government borrowing - Borrowing differences of budget deficits to make ends meet and to pay for all our expenses - Business dont like when this happens because then they are competing with the government on borrowing money and it also makes the economy unstable - 4. Economic stability inflation - Inflation: increases in prices - Therefore spending power goes down, affordability decreases - Business perspective: costs go up and revenues go down because consumers cant afford to buy - As long as inflation increases at a constant rate it gives consumers and businesses to keep up with it 5. Interest rates time value of money - Higher interest rates mean less buying - When interest goes down people spend more as they can fund purchases 6. Exchange rates - Foreign consumers are unhappy when Canadian dollar is high, affects the competition abroad PEST- Social Factors Elements 1. Customs, values, attitudes, and demographic characteristics 2. Influences consumer preferences 3. Influences worker attitudes and behaviours 4. Influences standards of business conduct 5. Ethics, social responsibility, stakeholder management Affects how we live, work, consume, and produce PEST- Technological Factors Elements 1. Internet affects buying, selling, communication 2. Information technologies affects information access, inter-firm cooperation, cycle times 3. Computer technologies have changed our products and how we design and build 4. Not limited to computers and information Affects what we produce/what it can do, affects how we produce and how we sell Challenge with Technology: demands constant learning and scanning PEST Three most important issues facing Canadian Business: 1. The value of the Canadian dollar o If the Canadian dollars strong your imports are cheaper 2. A skilled labour shortage o Educated population but still have a shortage, some due to immigration 3. The natural/physical environment o Canada cares for the environment which influences companies to operate in different ways Questions to answer from PEST 1. Do the economic conditions support my business? 2. Does it make sense? Is it appropriate to launch with the economic conditions? 3. What legal protection or laws do I have to consider? 4. Are there regulations? Patents? Etc... 5. What demographic and social trends affect my business and how? 6. What are current fads and trends that can benefit you 7. What technological forces affect me now and in the future? How do they assist of constrain? 8. How do they help me? 9. What opportunities or threats does the environment possess? 10. Go into detail, WHY ... and in what way. So what? Porters Five Forces Five different sources that directly affect the profitability of an industry 1. Each firm operates in a specific industry; each industry has different characteristics 2. Intensity of competition has a big influence on how the company operates and how profitable the industry can be 3. Porters five forces is one of the most popular tools to analyze the competitive environment and decide on strategy Porters Five Forces: Breakdown 1. Suppliers: those businesses that you do business with in order to buy critical inputs (e.g. computer chip manufacturer is a critical supplier for computer hardware). b. Fewer suppliers or high switching costs (signed contract, fee to cancel the contract and switch suppliers) means increased bargaining power c. More choice = more bargaining power, vice versa d. Bargaining power increases costs of inputs e. Use strategic alliance or internal supply 4. Potential Entrants: what new competition may come into the market? a. Can cause big changes with new ideas b
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