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Chapter 1

BU111 Chapter 1 Notes.docx

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Department
Business
Course
BU111
Professor
Leanne Hagarty
Semester
Fall

Description
Chapter 1: Course Models & Environmental Analysis Models Learning Objectives • Understand the relationship between the firm and its external environment – Course model – Diamond-E model • Describe what an external analysis is • Explain how to do an external analysis – PEST factors – Porter’s five forces model – Data sources • Understand the benefits and challenges of doing an external analysis Course Analysis Model: This model helps organize thinking, and makes a fair representation, a simplified version that represents reality Critical Success Factors: What drives the organizations behaviors and decisions • Achieving financial performance – Major factor, what makes the business profitable? Result of other actions; all other factors contribute to achieving high financial performance. Sometimes cash flow and profit are not equal and to be sustainable over both positions need to be healthy. If the business is healthy the business can expand and actually stay in business. • Meeting customer needs – Reaching more customers and staying connected to their demands and interests. The business must put in work and research to know what the customer wants and how to execute it. Anticipate the needs, understand them, and deliver and provide customer satisfaction. Ensures consumer loyalty and therefore profits. If there is a reputation and a positive relationship they will either return and buy more products/services or tell others about your business. RECURRING REVENUE. • Building quality products and services – If a company understands the level of quality and price point that their particular customer needs then the quality will be consistent and reliable. • Encouraging innovation and creativity – The product must always be innovating and creatively expanding to maintain customer interest. Customers always want better and if you provide it and provide it before competitors then you stay ahead of the market and maintain profits. This can includes processes behind the scenes, ie. distribution etc. and also product innovation. Quality and its definition keep moving. • Gaining employee commitment – An employee who achieves their own personal goals, while achieving the goals of the company. By doing their job they are fulfilling their own goals. When people are in a job where the can achieve both their own goals and the companies than they are move encaged, valued, developed, and a happy employee, that feels that they are adding value and making a contribution. People are the foundation that you are building your company on. When they feel good then they work better, ie. rewarded spiritually. Energized and committed employees take more care about products and services, because they are a reflection of their own efforts. Quality employees ensure quality services and products. • Creating a distinctive competitive advantage – Something that will draw the customer to your business, not your competitors. The service or product must be unique and different, but it also must resonate with customers and matter to them. Doing so should help maintain profits and customer reliability. Diamond-E Analysis Model: Identifies key variables to be considered in strategic analysis  Management Preferences: Managers are people too, and therefore they have bias, desires, and different approaches  Organization: The structure of the company, the capabilities; what can this organization actually do?, what is the leadership culture?  Resources: Human resources; people and skill sets, capital resources; actual assets, financial resources; money  Environments: The world – All of these factors are connected to Strategy Strategy-Environment linkage • Strategy: The plan, what opportunities the business is pursuing and not pursuing – Determines needed resources, organizational capabilities, and management preferences and is dictated by each variable (management preferences, organization, and resources) • Critical linking variable • Each variable related to the rest • Any variable can either drive or constrain strategy • Principal logic: CONSISTENCY or alignment; absolute alignment is not realistic • First task: deal with strategy-environment linkage, ideal id the strategy matches the external environment, management preferences, organization and resources – Assess forces at work and their implications External Analysis How to do an External Analysis • General environment – PEST model – considers political, economic, social/demographic, and technological factors – Identifies general trends and changes • Specific environment – Porter’s Five Forces - analyzes five important sources of competitive pressure and intensity; predicts profitability of industry • Look for data, statistics, trends, forecasts, expert opinions, etc. P.E.S.T – Political-Legal: The influence of a government over the businesses in that country, what these businesses can and cannot do legally Elements: • Laws, regulations – Product safety, minimum wage laws, working regulations, legal requirements, how many competitors there are in an industry. • Taxes – Taxes can create incentive for businesses or they can deter businesses. • Trade agreements or conditions – Tariffs are in place to protect the identity of the countries products, used to protect. • Political system – What the government thinks; what are the governments view, capitalists, socialists, and business friendly vs. non-friendly. • Political stability – If the government is stable then the business can have a long term plan, more certain than different countries, which have more risk associated with instability. Government can create incentives, constraints, or support/bail out when needed
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