Midterm Flashcards
Name the 6 Critical Success Factors and why are they important, how they connect and why must you pursue them?
- Achieving Financial Performance
- Meeting Customer needs
- Building Quality Products and services
- Encouraging innovation and creativity
- Gaining employee commitment
- Creating a distinctive Competetive advantage
- Important so you can see where your business is lacking internally and adapt your strategy to strengthen that weakness
- For any business to be successful they must have decent ratings in all 6 categories
What is the Diamond E model?
- Diamond-E model is important because business and the business strategy can only be successful if you align external and internal factors and have consistency towards a common goal
- i.e a company who did not do this is blockbuster
The model includes
- Management preferences
- How do managers make decisions and will they accept your recommendation? (Motive, history, biases, vision, and mission) - Organization
- Characteristics of an organization that allow the firm to carry out its strategy
- Culture (conservative? adaptable to change?)
- Capabilities (Research and Development)
- Structure (Activities) - Resources
- What is the firm’s tool kit that it can use to carry out the strategy?
- Human
- Capital (buildings, equipment)
- Financial - Strategy
- Plan of action to create a competitive advantage for more market share and customers
- It glues together your internal and your external
- Assess your current strategy, generate a new one and then evaluate proposed strategies
External
- Porters 5 forces which is more specific to an industry
- Pest that is more general
-They help identify opportunities to pursue or threats to defend against and companies who do not do this will not survive.
A SUCCESSFUL STRATEGY WILL ALIGN WITH THE THREE AREAS OF
- What we want to do (management preferences)
- What we can do (organization and resources
- What we should/need to do (Environment)
Benefits and Challenges of the external analysis
Benefits
- Managers are proactive
- Discover information that is useful for planning
- Cope with uncertainty
- Highlight gaps in recourses
- Consistency and performance
Challenges
- Time Consuming
- Forcast and analyses are imperfect making your strategy imperfect
- Rapidly changing environment makes it hard to keep up with
Why is an external analysis important?
- Understanding the current situation
- Anticipating Future trends
- Anticipate quick change
Porters 5 Forces
Porters 5 forces are mainly used to predict and evaluate the profitability of a given industry which can be determined by the profit margin
- Rivalry among existing firms
- High Rivalry can result in lower volumes, price competition, and increased costs - Supplier Power
- Organizations or people that provide the input to your product - Buyer Power
- The bargaining power that the consumer has with your product - The threat of New Entrants
- How easy is it for a new firm to enter your industry and take up market shares and customers - Substitutes
- Products and services that provide a subset of the value that you do
- I.e freshii vs making a salad at home
Rivalry Amongst Firms causes and solution
Causes for high Rivalry
- High exit Barriers
- Makes it harder for firms to leave - Low customer Switching Costs
- Easy for customers to switch for different rival firms - Perishable Commodity Products
- When a product has an expiration date competition is more intensive between rivals to be able to sell their goods
Solutions
- Acquisitions of competitors
- Creating or increasing customer switching costs
- through contracts and such - Differentiate product/service
- Find something you can compete on that other companies can’t replicate
Suppliers power causes and solutions
Causes for high supplier power
- A low number of supplier
- Few good substitute suppliers/ inputs
- Not a lot of other suppliers have the same quality - High switching costs
- Your supplier has locked you in with a contract
Solutions
- Form a strategic alliance
- Make it more beneficial for them to continue a partnership with you - Internal Supply
- start making the input yourself - Redesign your product to not need that input (long run)
The threat of New Entrants causes and solution
Causes
- No regulation or government policy protecting the industry
- Lack of capital incentive (easy to start a business not that hard)
- Lack of specialized assets/knowledge
- you don’t need a degree to start business in that field
Solutions
- Lobby the government
- Differentiate and create brand loyalty
- Lock customers in
The threat of substitutes causes and Solutions
Causes
- Lots of good quality substitutes
- low switching costs
- High buyer Propensity to substitute
- because buys have so many options at basically the same price they will behave in such a way and not have loyalty to a brand.
Solutions
- Lock in customers
- Create Brand loyalty through strong marketing
Buyer power causes and solutions
Causes
- Few concentrated buyers
- only selling to a few people therefor they feel like they can negotiate the price - Discretionary Purchase
- Your product isn’t necessarily something people need to survive so they can choose not to have it and cut it out - Low switching costs
Solutions
- Form alliances with other sellers
- Engage in strong marketing and differentiation
- create switching costs and lock-in
Why does the PEST analysis matter?
- Framework to analyize the general enviroment
- Identifies trends or changes in the enviroment
- Helps managers identify opprotunities and prepare for threats in the enviroment
Politcal: can create incentive for businessess
Economic: Affect costs, sales and finicial uncertainty
Social: Influence customer prefernce
Technology: Results in firms needing to constantly scan the enviroment
New Venture
Is a recently formed commercial organization that sells goods and services
Entrepenuership
Identifying an opprotunity and accessing rescoues to capitalize on it
- Goverment may provide tax incentives recouces and advice to help you gets started
Small business
Owner Managed, not dominate in the market and less than 100 employees
- 98.1% of all buisnesses in canada are small
- contributes to 30% of the annual GDP
- Provides more jobs that ht elarge buisnesses and drive innovation
becuase of these reasons the goverment gives them lower tax rates, funding, and allows them to be easily established
Entrepenuer ship process
- Identify an opportunity typically through expiernces and finding the need to solve a problem
- Idea generation
- Screening ideas - Access rescouces
- Entrepenuer
- An individual willing and able to seek the opprotunity \
ALL THREE MUST BE ALIGNED FOR IT TO WORK
