Business Flashcards
Business Life Cycle Concepts: Introduction
- Company, product, or service new to the market
- Revenue is low because market is unfamiliar with company
- Market resistant to change
Business Life Cycle Concepts: Growth
- Market is aware of the company, product, or service
- Revenue increases at a rate consistent with industry
Business Life Cycle Concepts: Maturity
- Competition increases as market is saturated with similar products or services
- Revenue remains somewhat stable
Business Life Cycle Concepts: Renew
- Organizations may renew by offering new products or services
- Organizations may renew by streamlining business operations to better manage expenses
Business Life Cycle Concepts: Decline
- Demand for products or services decrease
Porter’s Five Forces: Threat of substitution
- Degree to which it is easy for competitors to attract your company’s customer base
- High threat, adjust pricing strategy, HR promotes cost efficiency
- Low threat, organization has more investment capital, HR promotes entrepreneurial culture
Porter’s Five Forces: Threat of entry
- Degree to which it is easy for a new competitor to enter the market
- High threat, HR promotes need for nimble workforce
Porter’s Five Forces: Bargaining power of suppliers
- Vulnerability to changes in supply chain vendors/partners
- High bargaining power of suppliers, HR promotes learning and development strategies that improve the workforce’s ability to negotiate and manage risk; desired employees are ethical and can manage effective vendor relationships
Porter’s Five Forces: Bargaining power of buyers
- Vulnerability to changes in consumer behavior
- High consumer influence, sales and marketing skills more critical
Porter’s Five Forces: Rivalry among existing competitors
- All forces impact rivalry among existing competitors
- Company competitive posture is either weak, tenable, favorable, strong, or dominant
Zero based budgeting
Every budget line item starts at zero and must be justified by the leader
Incremental budgeting
The numbers from the prior budget are used as a starting point for the current budget. This is the traditional way of budgeting.
Formula budgeting
Different units receive different budget percentages.
For example, the decision may be to decrease bonus budgets by 10% across the company. However, executive bonuses may be decreased by 5% while bonuses for the rest of the staff may be reduced by a larger percentage, but they both roll up into a number that is a 10% decrease overall.
Activity based budgeting
Budget is based on the value of a service or product for the company.
For example, if a reseller like Amazon makes the strategic decision to sell more Amazon video services, the decision may be to invest a larger portion of the budget to marketing and sales instead of research and development.
Balance sheet
Snapshot in time of the company’s financial position
Assets
Everything a company owns
Liabilities
Everything a company owes
Equity
What is left after a company pays all liabilities and liquidates all assets
Income statement
Also known as a P&L statement.
Measure of the company’s financial health over a period of time like a year or a quarter.
Revenue
Company’s income
Expenses
Company’s costs
Profits
Difference between income earned and operating costs
Statement of cash flows
Report of how much cash a company has on hand, or how liquid the company is
Operating activities
Buying and selling of goods and services
Investing activities
Gains or losses generated due to the company’s investments
Financing activities
Debt or financing a company acquires
Profit margin
Revenues - costs = profit margin
Earnings per share
(Net income - Dividends on preferred stock)
/
average outstanding shares
Return on investment (ROI)
(Investment gains - investment costs)
/
Investment cost
Change Management: Cascading approach
Top-down approach
Change happens at the most senior levels of the organization and those changes prompt other changes down to the business units
Change Management: progressive approach
Change starts at the top but is shared simultaneously with the whole company. Slowly, changes are made across all the business units.
Change Management: Organic approach
Change can start at any level and eventually spreads throughout the organization. It’s a slow process, unless there’s executive sponsorship that accelerates the change throughout the organization.
McKinsey 7S Framework
- Strategy
- Structure
- Systems
- Style
- Staff
- Skills
- Shared values
McKinsey 7S Framework: Strategy
This is your organization’s plan for building and maintaining a competitive advantage over its competitors.
McKinsey 7S Framework: Structure
This is how your company is organized (how departments and teams are structures, including who reports to whom).
McKinsey 7S Framework: Systems
The daily activities and procedures that staff use to get the job done.
McKinsey 7S Framework: Style
The style of leadership adopted
McKinsey 7S Framework: Staff
The employees and their general capabiliies
McKinsey 7S Framework: Skills
The actual skills and competencies of the organization’s employees
McKinsey 7S Framework: Shared values
These are the core values of the organization and reflect its general work ethic. They were called “superordinate goals” when the model was first developed.
