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Wilfrid Laurier University
Sofy Carayannopoulos

BU111OC-Z Course Notes 5/31/2012 5:54:00 PM Chapter 1: Introduction to Business Environment Opportunities and Challenges in the Mobile Phone Market  All businesses are subject to influences of economic forces  Cell phone and mobile phone market potential is huge but competition is extremely strong o new product introductions all the time o advancing technology, etc.  two trends that make it difficult to predict the future in smart phone industry: 1. Bring your own device: responsibility of having phone to employees, not employers duty, just the way the world is going 2. Sandboxing: separating work functions from the rest of the smart phones for security reasons (work alongside games and internet, etc.)  lawsuits for infringement create uncertainty  knock-offs in China create great uncertainty too The Idea of Business and Profit  dynamic and changing nature modern business activity o competitors o technology o new products o corporate strategy o risk management o stock prices  business – an organization that seeks to earn profits by providing goods and services  profit – what remains after expenses are subtracted from revenues; a reward for risks involved in investing  the prospect of earning profit is what encourages people to start and expand businesses o profits are paid to owners, shareholders and taxes to support all levels of Government Economic Systems Around the World  Economic System – way in which a nation allocates its resources among citizens  who owns and controls factors of production?  Factors of production (resources used to produce G+S): o Labour (human resources) – mental and physical training and talents of people o Capital – the funds needed to operate an enterprise o Entrepreneurs – organizes and manages labour, capital and natural resources to produce goods and earn a profit; also runs risk of failure o Natural Resources – natural occurring resources used in production of G+S o Information Resources – market forecasts, economic data, specialized knowledge of an employee that is useful to the company to achieve its goals  Command Economy – government controls all or most of the factors of production and makes all or most of the production decisions o Communism – government owns and operates ALL industries, after industries established Government backs off; not the case o Socialism – government owns and operates the main industries where individuals own and operate less crucial industries  Market Economy – individuals own and control all or most factors of production and make all or most production decisions o Market – exchange process between buyers and sellers of particular G+S o Input Market – firms buy resources they need in production of G+S o Output Market – firms supply goods and services in response to the demand of customers  Consumer buying patterns  Capitalism – markets decide what, when, and for who to produce o Free market economy o Allows private ownership of factors of production and encourages entrepreneurship by offering profit as incentive  Mixed Market Economy – both command and market economy elements o Governments in the mixed market economies have intervened in the economic system in attempt to stabilize it but led to higher deficits and more governmental control of business activity  Privatization – transfer of activities from Government to private sector  Nationalization – transfer of activities from private firms to Government o Government bail outs during recession  Deregulation – reduction of number of laws affecting business activities Lecture 2– Environmental Analysis: Models, Purposes, Challenges Critical Success Factors  Achieving financial performance o Profitability, cash flow o Important for survival and sustainability and growth  Meeting customer needs o Need sales, without customers you will have no sales o Want return customers, will go to competitors if you don’t meet their needs o Multiplier effect: mad tell 10 people, happy only tell 1  Building quality products and services o Get what you pay for; meet the quality expectations consistently o If you meet expectations consistently, you can tie that back to meeting their needs, and achieving financial performance  Encourage innovation and creativity o Exceeding expectations, exceed what competitors are doing o Create a need; anticipate needs that aren’t even there yet o Keep up with expectations, stay ahead of competition o Tied to gaining employee commitment  Gain employee commitment o If they’re happy, they will stay and be productive o Need their commitment in order to succeed o Don’t want high turnover (recruitment, training, etc) o Deal directly with clients and customers, they are the FACE of your company  Create a distinctive competitive advantage o High necessity o Low substitutability o Unique or different and in demand o Cost competitive advantage is not sustainable, people will drive down prices, price war is not sustainable Learning Objectives  Understand the relationship between the firm and its external environment o Course model o Diamond-E model  Describe what an external analysis is  Explain how to do an external analysis o Porter’s five forces model o PEST factors o Data sources  Benefits and challenges of external analysis Diamond-E Framework Need consistency and alignment between variables** If you have a certain strategy, need right resources and management and leadership; also need conditions of external (demand, etc.) Absolute alignment is not realistic  Framework:  Management preferences o each of us is biased, management (upper) influence and drive strategy, but their preferences influence what happens throughout company and therefore directly influence direction business will take  Organization o culture; laid back; capabilities of organization; leadership of organization; very broad  Resources o financial; human resources; capital resources  Strategy o Goals of company; market focus; core activities; encompasses opportunities business has decided to pursue o determines needed resources, organizational capabilities, and management preferences o Has to balance internally and external environment o How do you satisfy internal and external  Environment (External) o Everything outside of the doors; PEST o Environment is the link to strategy Every element can drive or constrain or bias every other and vice versa Very dynamic, working model Most important link is strategy and environment First task: deal with strategy-environment linkage Assess forces at work and their implications External Environment consists of PEST Tools for External Analysis  Scanning and evaluating what is happening outside business in external environment o What are opportunities and threats and how to deal with them and their impacts  Data, stats, trends, forecasts, expert opinions, etc.  Environment (general or specific)  General Environment o Affects ALL business o PEST model (political, economic, social/demographic, technological) o General trends and changes  Specific Environment o Only affects within an industry (music, publishing, similar products or services) Porters Five Forces – five sources of competitive pressure; predicts industry profitability; profit potential of certain industry The PEST Model How do the forces affect the operation of my business and how I run my company? How attractive is it to operate as a business?  Political-Legal Environment o Laws and regulation o Taxes (higher or lower, incentive or disincentive) o Trade agreements or conditions (trade partners, preferred supplier, etc. o Political system (free enterprises easier, less regulation easier) o Political stability o Government can create incentives, constraints, or support/bail out when needed o Affects uncertainty, risk, and constraints/costs faced by firm  Economic Factors o Influences costs of doing business, potential sales, and financial uncertainty o Economic growth (aggregate output, GDP, standard of living) o Trade balance (importing vs. exporting, ties in with exchange rates) o Exchange rates (high CDN dollar means we are ahead for buying, and others will not want to buy from us) o National Debt (government borrowing) o Economic Stability (inflation, general rises in prices, too much inflation [hyperinflation] need to peg dollar, devalues your currency, keep up with prices etc. o Interest Rates (time value of money)  Social Factors o Customs, values, attitudes and demographic characteristics o Influences customer preferences o Influences worker attitudes and behaviors o Loyalty, etc. o Influences standards of business conduct o Ethics, social responsibility, stakeholder management, keeping everyone happy etc. o affects how we live, work, consume and produce  Technological Factors o Internet affects buying, selling, communication o Information access, inter-firm cooperation, cycle times o Computer technologies have changes our products and how we design and build o Not limited to computers and information o Swiffer vs. broom o Affects what we produce/what it can do, affects how we produce and how we sell o Demands constant learning and scanning PEST – Questions to Draw Out (Facebook Example)  Do the economic conditions support my business? o Start up costs, overhead, easy to set up?  What legal protection do I have or laws do I have to consider? o Not a lot of legal hassle, copyright concepts, privacy  What demographic and social trends affect my business and how? o Students, internet savvy, trying to connect different Universities, friends at different universities, connecting, internet just gaining force, myspace -> facebook, balloon effect of networking, more people bring more power, give thanks to older social media/networking trends (myspace, MSN, etc.)  What technological forces affect me now and in the future? How do they assist or constrain? o Support huge amounts of data, only going to improve, good chances of growth, updates and revisions, mobile platform, expansion, more and more accessible technology  What opportunities or threats does the environment possess? o Other networks are threats but could cooperate (integration of twitter and facebook, instagram, expansion, facebook all in one, acquisition turns threats into opportunities; social advertising is san opportunity (interests are being pegged) Porter’s 5 Competitive Forces Analy
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