BU111-Midterm-Notes - Lecture notes 1-6 PDF

Preview

Summary

Lecture notes for BU111 before midterm.
Lectures 1-6
First year, 2018/2019, prof name: Sofy Carayannopoulos...

Description

The relationship between the firm and its external environment Critical success factors  What they are  Why they are important  How they connect to each other  How they apply to different types of businesses What they are  Achieving Financial Performance o Positive trend of profitability o Expansion and growth = continued profit o How profitable a company is in comparison to other companies of same industry  Meeting customer needs o Not just meeting needs today, but what they want tomorrow (creating something they didn’t even know they needed) o Understanding their wants o Socially accountable customers (people starting to care more about the social impact of the products they’re buying) o Customers are what generate sales, so need to meet their needs or someone else will  Building quality products and services o Giving them the quality they paid for => money reflects value and customers want value for their money o Consistency is key => need to be high quality product every time; this is what franchises are built on o If we don’t build quality products and services, we create more expense for ourselves (having to fix it, refund - giving money back to customer, or garbage of product – wasting resources)  Encouraging innovation and creativity o Creating same products at lower costs = financial performance (expenses going down and revenue going up) o Creating new products that people don’t even know they want o If you are innovative, competition will be  Gaining employee commitment o Employees are stem of any organizations o Attracting, keeping and motivating high quality employees is key!



How they relate Finan cial Perfo rman ce

Custo mer needs

Quali ty produ cts

o If they don’t like it, they will leave but you have spent money and time training them = competition will benefit and you’ll have to train someone new o Achieving - Getting your employees incentives to innovate, make them feel involved in end product, making them a part of the organization to gain full commitment Creating a distinctive competitive advantage o In perfect competitions, all products are the same, deciding factor is price (ie gas station with lower price will get more customers) o Achieve this through sustainability o Example – Apple – people believe Apple is a better product so will spend much more Financi al Perfor mance

Custom Quality er products and needs services

Innovation and creativity

Employee commitment

Competitive advantage

When custom er needs are met, they will buy product

Better quality products = less returns and more people wanting to buy

Producing same goods at lower price = increase in revenue

More committed employee will sell more due to passion (more time and effort) and knowledge about product

IE Walmart – Financial powerhouse - more money = able to do more to increase advantage

People willing to spend more on quality products or target may be people who don’t want to spend a lot = less quality product

Constantly meeting customer needs through innovation customers may have a need that you can create a product to solve that need - new innovation makes the product/se

Good Employees will identify and meet customer needs

IE – WestJet Is known for their customer service and is therefore their distinct competitive advantage

Employees will take pride in their work when creating

Quality of their products may be their

and servic es Innov ation and creati vity

Empl oyee com mitm ent

rvice better

quality products If employees have an outlet for their projects to be showcased = more committed employees and new products

distinct competitive advantage Constantly creating new products and services is a competitive advantage (samsung, apple) With a competitive advantage, employees will want to work for you (known brand)

Comp etitiv e advan tage IE •

•

•

•

Joes Java o Meeting customer needs o Achieving financial performance Studio Celtica o Gaining employee commitment o Quality products and services High Tech Bar Top o Innovation and Creativity o Competitive advantage SOS o Achieving financial performance (price high enough to help people but low enough for people to afford to attend sessions) o Building quality services (having an 11 or 12 in the course) -> meets customer needs o Employee commitment (returning employees – he knows what works well creating a better service) -> will return and therefore make sessions better for future years, learning from mistakes and creating better products

o Innovation and Creativity (bringing in new people to create new products/ improve services) -> leads to gaining employee commitment because engages them fully and take pride o Meeting needs of customers – is when the customers need the help and support when students need it the most -> lead to financial performance for charity o Competitive advantage – the best session so far Why they are important  Tell you how to be successful in a business  Need them all because all related – if one fails there will be a domino effect and financial statement will suffer

Vision  Should align with organizational values and culture  Guides strategy by keeping focused on desired future – where do we want to aim to be? (Samsung – Inspire the world, create the future)  Pick the Target and hit it well Mission - The HOW to achieve your vision - Guides strategy by listing broad goals and acceptable approaches; Keeps you on track - IE Samsung – why? To inspire the world. How? Innovative technologies, products and designs. Who? People’s lives. Benefit? Contribute to a socially responsible, sustainable future

Diamond-E model  Key variables  Connections among variables  Principal logic  Examples

Purpose  Assess current strategy  Generate new strategic proposals  Evaluate strategic proposals  Can’t change the environment so need to know how to react/anticipate Key Variables 1) Strategy  Linking variable in the model  The business uses the plan to pursue opportunities (presented in environment) and achieve CSF  Determines and is determined by internal qualities  Any variable can either drive or constrain strategy  Steps that you plan on taking to achieve goals you have 2) Management Preferences  Determines how risky of a plan a business may have  Ambitions – what they see for the company  Always consider what the decision maker wants – they are the ones making the final decision and if they aren’t comfortable with your suggestion, it wont happen  Need to consider them because they set the vision and mission and you need to follow that 3) Organization

Culture – vision and mission, design of company and how employees connect  Capabilities – what the organization can do (management says what capabilities the company is going to focus on)  Structure 

4) Resources   

  

Financial – how we get it and where we spend it Capital – how many locations and where they are located Management decides if human resources are local or international, if go big or remain small, what kind of skills they are going to hire

Environmental analysis uses the tools to come to specific conclusions regarding the nature of the competitive arena, what it takes to succeed in the industry, and what strategies are possible Market size and growth, # of rivals/substitutions Cost factors – economies Strategy Management Organization Resources Environment Preferences

Strategy

Managem ent Preferenc es

Management is the one that decides on strategy that is going to be used, their comfort levels will reflect in strategy

Having a strategy that manageme nt is already committed to, they will have a bias towards it

Organization is what the company is good at, which will limit strategies available to be made

Resources available will influence what kind of strategy is feasible

The organization has been set (by previous management) and may influence how management makes decisions

Need different resources to make different decisions, decisions will be based on what resources are available

What is happening in environment will adjust the planning of company so they can continue to succeed, environment will present opportunities Environment will limit the preferences that the management wishes to have

Organizati Reshufflin on g of the organizati on may be needed with a new strategy

Resources

Strategy may require use different resources or need more of one resource

Management determines the structure and capabilities of the company, they set the culture of the business Management decides what resources the company has

The resources are what make up the organization and how it is structured

Organization is what we are good at a resources will follow suit to ensure company can continue to focus on advantage

Environment may cause a shift in the structure or what the company chooses to specialize in

Environment may change the resources available or the resources needed to continue to be successful

Principal Logic  Consistency or alignment  Consistency internally leads to performance  Alignment externally ensures strategy is right for the given environment  Internal qualities need to align with all aspects of diamond-e to ensure that it all balances and works  Necessary for strategy to be possible (consistency) and successful (alignment with environment)  Understand that consistency internally leads to performance only if there is an alignment between strategy and the environment  Remember that a two way relationship exists where if your strategy isn’t consistent with the resources of the company, no matter how well aligned the strategy is with the environment, it will not be feasible  Warning – Environment is always changing  Example – Blockbuster (inconsistent) o Movies moving to online streaming and directly through TV o No one wanted to go to the store to rent when you could get it in convenience of home o Didn’t evolve with it’s environment  Example – P&G strategy in 2000 (inconsistent) o Had capabilities and resources => decided to move into new product lines o Environment wasn’t suitable (recession) and didn’t support all new products o Manager was very aggressive and missing parts.  Example – Ikea Strategy (consistent)

o Affordable, durable, transportable, easy to build o Had a lot of resources being able to support them o Environment was full of people living in small spaces and young families/college students = successful How?    

First task – Deal with Strategy-environment linkage Assess forces at work and their implications Adjust internal or adjust strategy Example – Digital Camera Market – Canon vs Kodak o Kodak made money through film and devoted to make better film o Cannon saw where the environment was moving and made risk to go with digital route, at first it didn’t pay off but now one of biggest companies for digital cameras Remember SMORE – a snack that connects my internal preferences for a warm chocolate and marshmallows with my fire in my external environment MORSE – a “two way code” helps the internal and external aspects “communicate” (plus it keeps strategy in MOR and Environment) External analysis  What it is  How to conduct one  General vs. specific environments  Benefits and challenges of conducting one What?  Process of scanning and evaluating the external environment  How managers determine opportunities (positive external trends or changes) and threats (negative external trends or changes)  Identifies threats and prepares for them before they happen  Firms face multiple environments – a) general environment; affects all businesses (ie – laws, interest rates, demographics) and b) specific environment; affects industry participants How to do an external analysis  General environment (PEST Model – identifies general trends and changes)  Specific Environment (Porters Five Forces – analyzes competitive pressure and predicts industry profitability  Look for data, statistics, trends, forecasts and expert opinions  Identify what is important and how it impacts. PEST factors  Elements  Impact on business  Questions to answer from PEST analysis  Threat or Opportunity

Political-Legal Environment  Why? For protection of consumers, support for, protection and regulation of domestic business and opportunity creation in foreign markets (Creates more jobs)  Elements o Laws, regulations o (Constraints on what business are allowed to do, to protect our money) o Taxes  Higher business taxes = lower drive to do that business  Environmental tax breaks if effort made to protect environment  Tax breaks for those companies starting in developing communities o Trade agreements or conditions  Competition gets more competitive if other companies can sell without duty, but can be reversed where you don’t sell with duty but everyone else does (Competition) o Political system  Ie: communist country – you can’t own your own products o Political stability  Political instability creates unpredictable environment making it undesirable for companies  Business implication: Affects uncertainty, risk, and constraints/costs faced by firms Economic Factors  Why? Affect economic growth (measures: aggregate, output, GDP, GNP, economic stability, employment)  Elements o Inflation/deflation  When prices inflate, there are higher costs (expenses)  Biggest hit to the luxury product industry vs necessity like food. o Interest rates  When it goes up, it costs you more to borrow money o Employment rates  When unemployment rates increase, fewer people have jobs and have less money to spend on your products  Low unemployment rates – less qualified workers available o Exchange rates  Important because international shipping, raw materials grown in other companies  What is going to happen to it, where is it going o Balance of Trade  Exporting more than importing or vice versa o Productivity  How much do we get out of what we put in (More with Less)  Business implication: affect costs, sales, financial uncertainty, if people have enough money to buy their products

Why? Affect economic growth measures: aggregate output, GDP, GNP Economic stability, employment. Social Factors (Society) • Why? Affect customer preferences, worker attitudes and behavior, standards of business conduct, and corporate social responsibility • If not thinking about what the people want, it will be harder to sell • Elements • Customs (ie Christmas Trees) • Ie people who don’t eat meat (McDonalds in India) • Values  How we do things, what we believe  Ie healthy attitude • Attitudes • IE smoking => change in attitude is a change to how we react • Trends • Local food • Demographic Characteristics  Women verses men, age groups, Level of Education 

Business implications: Affects how we live, work, consume and produce, customer preferences, how you feel about your company (ie environment) • Everything effects everything else => the S of PEST often reflects our laws because of who the people elect. The S influences the P Technological Factors  Why? Demands constant learning and scanning, creates significant change and challenge (Swiffer sweeper)  Technological advancements key to changes in environment  Elements o Internet  affects buying/selling and communication o Information technologies affect information access, inter-firm cycle times  Suppliers connect with companies through technology (ie when a product is running low, supplier can see because they have access to inventory website) o Not limited to computers and information  IE mechanical pencils o Innovation structures  New products all the time – things getting outdated quicker  Ie: 3-D printing = making prototypes that much faster  Business implications: affects what we produce/what it can do (ie assembly line workers being replaced with technology, affects how we produce and how we sell (Ie: door to door flyers to email flyers), hard to keep up with o Need to be constantly up to date with today’s tech advances READ pg 23-24 Identify changes/opportunities and their implications 1. Outsourcing •

2. Social media and Viral Marketing 3. Business process management Question to answer from PEST • Do the economic conditions support my business? What current and future economic factors affect my industry and product? • What legal protection do I have or laws do I have to comply with? • Are there any opportunities provided by the government that can help my business? Ie grants • What demographic and social trends affect my business and how? • What technological forces affect me now and in the future? How do they assist or constrain? • What opportunities or threats does the environment possess? Michael Porter’s five forces model  Explanation of each force’s impact on industry profitability  Methods of reducing the impact of each force  Strategic questions it answers  Industry examples/Analysis

Effects on Industry Profitability 1. Competitors = more intense rivalry a. Lowers revenue b. Not a big market to share c. Downward pressure on price 2. Potential Entrants a. More people entering the industry b. The easier it is for new people to enter, the more downward pressure on price 3. Suppliers a. If they are able to increase price they charge you, your profitability goes down b. If you are able to negotiate, you will have the advantage in profitability 4. Buyers

a. When buyers have upper hand, they have the ability to negotiate with you b. If you have the upper hand, you have 50 other people willing to buy your product at the set price so buyers don’t have ability to negotiate 5. Substitutes a. If the substitute is good enough, and price is way lower then consumers will buy that over your product b. You need more time and more energy to convince the buyers to buy your product c. Has no impact on competition for example Bike Vs Car. 6. NORTH – SOUTH = COMPETITION 7. WEST- EAST = SUPPLY CHAIN

Rivalry among existing firms  Who sells something very similar to you  Most powerful of 5 forces  Results in price competition, lower volume, increased costs  The more competitors there are, the more downward pressure to lower prices Factor

Effect

Many competitors of equal size/capability Low Industry growth rate/capacity of competitors

Low consumer

Solution • •

    

How many new customers are coming to industry (fighting harder for smaller slice) 100% capacity (selling everything they produce) if lower capacity – companies will fight if industry isn’t growing quickly, competitors will try to source growth from your market Low switching costs = competitors will take consumers away (VERY HIGH COMPETITION

•

Growth Acquisition of competitors (Fido and Rogers teaming together) Create/incre ase consumer switching costs

switching costs



High switching costs = customers thinking twice before switching and will stay with the company longer ( LOW COMPETITION)

Products are commodities or perishable

 

If viewed as a commodity, people will buy solely on price (causing prices to drop) If food goes badly quickly, you will need to sell • it asap (Sport tickets) (Airplane)

Exit barriers



Costs of getting out of industry (Capital Asset Cost)  High switching costs = more competitors choosing to stay –( downward on profit) •

Differentiation (creating something consumers can’t get other places) Find use in

Suppliers  Who provide your key inputs?  Affects cost of inputs  How can you negotiate with the suppliers  What factor de...